6. Can High Interest Rates and Inflation Coexist?

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Can High Interest Rates and Inflation Coexist?

February 2, 2022

Currently, Argentina has a reported inflation rate of 50.9%. The country’s 10-year government bond yields only 50.4%. Why would an Argentinian bank buy such a bond with an negative real rate of return? The answer is that the bank deposit rate in Argentina is only 37.2%.

Thus, the bank earns a massive profit while debasement continues in a very high interest rate environment.

In Argentina, this has been going on for a very long time. From 1944 to 2021, the average annual rate of inflation in Argentina has exceeded 192%.

One lesson to be learned is that high interest rates and inflation can coexist.

Source: Trading Economics, Statista

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