To Curb Peso's Decline, Argentina's Central Bank Raises Interest Rate to 60%

The Central Bank of Argentina (Banco Central de la República Argentina/BCRA) was forced to raise its benchmark interest rate to 60% to curb capital outflow as the peso depreciated against the US dollar. Year-to-date (YTD), the Argentine peso has depreciated 51.67% to 38.53 per US dollar.

The drought affecting this southernmost country in the Americas, the surge in global crude oil prices, and the strength of the US dollar against world currencies have caused the Argentine peso to decline against the US dollar. Not only Argentina, but the Turkish lira also experienced a similar situation, weakening by more than 42% (YTD), as shown in the graph below.

The Indonesian rupiah is no exception. At the end of the week's trading on Friday (August 31st), the rupiah closed at Rp 14,710 per US dollar, weakening by 7.85% compared to its position at the end of last year. This level is also the rupiah's worst position since July 14, 2008. However, the rupiah's depreciation is not as severe as other currencies because fundamentally, the Indonesian economy remains quite solid. Foreign exchange reserves can still finance imports for more than 6 months, inflation is controlled at 3.18%, and the economy is still growing at around 5%.