The Federal Open Market Committee explained in a statement that the move was taken as “inflation remains high, with the war in Ukraine and new coronavirus lockdowns in China threatening to keep pressure high.”
The North American central bank had already started raising rates in March, after keeping them close to zero for almost two years to stimulate the reactivation of an economy hit by the Covid-19 pandemic.
The monetary authority insisted on its expansive policy since it considered that inflation was “temporary”. However, prices have been rising steadily for some time, a situation that was aggravated by the war in Eastern Europe. In parallel, the Fed considers that the recovery of employment in the US is robust, for which reason a large-scale stimulus is no longer urgent.
In this context, the dollar index, which measures the “greenback” against a basket of six globally representative currencies, reached its highest level in 20 years Recently, due to the behavior of “fly to quality” (fly towards quality) of investors in this type of scenario.
A stronger dollar means lower commodity prices, something that could affect Argentina’s trade balance. Likewise, it can fuel the search for currency hedging in hard currency, forcing the BCRA to either lose more reserves or speed up the rate of devaluation.
It is worth remembering that the previous process of raising rates had taken place in 2018, to cool down an economy that was considered “overheated”.
This adjustment added fuel to the fire of the exchange rate run that was being generated in Argentina as a result of local factors such as the high current account deficit and a change in the BCRA’s monetary policy that did not go down well in the markets. In this framework, the price of the dollar went from $20 to $40 in just five months.
Source: Ambito
David William is a talented author who has made a name for himself in the world of writing. He is a professional author who writes on a wide range of topics, from general interest to opinion news. David is currently working as a writer at 24 hours worlds where he brings his unique perspective and in-depth research to his articles, making them both informative and engaging.
