Argentina raises interest rates sharply to save «peso»
Sunday – 4 Rajab 1440 H – March 10, 2019 AD Issue number [
Buenos Aires: «Middle East»
The local currency in Argentina ended its trading session yesterday as the country's central bank launched short-term debt at higher interest rates in a bid to stop its currency losses last Thursday.
The Argentine currency is under pressure as inflation levels rise and the economy shrinks in a year when elections will be held.
The peso rose yesterday by 1.8 percent, equivalent to the dollar 41.75 against the Argentine currency, after reaching the US currency Thursday to 42.5 pesos.
The peso weakened sharply last week, extending its losses since the beginning of the year to about 10 percent, renewing fears of another wave of sales after losing nearly half of its value against the US currency in 2018.
The Central Bank of Argentina sold 104.865 billion pesos ($ 2.539 billion) of Leliq securities at an average annual interest rate of 56.756 per cent, according to traders, which is sharply higher than Thursday's 51.862 per cent.
Reuters says the high interest rates on Leliq are encouraging market traders to sell dollars to buy the peso-dominated debt, which supports the Argentine currency.
Macri faces tough economic challenges ahead of crucial general elections in October. Argentina has one of the world's highest inflation rates of about 50 per cent last year. In a poll released by the central bank on Wednesday, economists raised their inflation forecast for 2019 to 31.9 percent.
In the first two months of this year, the central bank spent about one billion dollars to try to weaken the peso after it rose to levels beyond the scope of trading agreed with the International Monetary Fund.
Analysts expect the peso to continue to decline to about 48 against the dollar by the end of the year.
In June, the International Monetary Fund (IMF) agreed to give Argentina the largest loan in its history worth $ 50 billion. The international institution agreed to increase the loan to $ 57.1 billion in a bid to save the country's currency from the continuing collapse.
The IFAD loan will help Argentina repay its external commitments, which were recently estimated at $ 28 billion in 2019.
Argentina is emerging from emerging markets, which have recently faced turmoil after drought caused Latin America's third-largest economy to slide into recession. Concerned by Argentina's inability to service its foreign debt this year, the peso became one of the worst performing currencies in 2018. The currency has lost more than 50 per cent of its value since the beginning of 2018.
IMF Director Cristian Lagarde said the Argentine Central Bank had agreed in the framework of the loan agreement to liberalize the peso exchange rate and not intervene in the exchange market, except in cases of extreme necessity.