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


This post was also published on Twitter/X. Click to see this post:     

Confidentiality Notice: This post, and any attachments, contains information that is, or may be confidential or proprietary in nature. If you are not the intended recipient, please be advised that you are legally prohibited from retaining, using, copying, distributing, or otherwise disclosing this information in any manner. Furthermore, this communication is for informational purposes only and nothing herein should be construed as a solicitation, recommendation or an offer to buy or sell securities or any product.

© 2023 Horizon Kinetics LLC ®. All rights reserved.