Argentina drastically increases interest rates to save "weight"
Sunday – 4 Rajab 1440 H – March 10, 2019 issue number [
Buenos Aires: "Middle East"
The local currency in Argentina closed its trading session yesterday as the country's central bank launched its short-term debt at higher interest rates in an attempt to halt currency losses last Thursday.
The Argentine currency is under pressure as inflation levels rise and the economy shrinks in a year when elections are held.
The weight rose yesterday by 1.8%, equivalent to the dollar of 41.75 against the Argentine currency, after reaching the US currency on Thursday at 42.5 pesos.
The peso weakened sharply last week, extending its losses from the start of the year to around 10%, renewing fears of another sales wave after losing nearly half of its value compared to the US currency in 2018.
The Argentine Central Bank sold 104.865 billion pesos (2.539 billion dollars) of Leliq securities at an average annual interest rate of 56.756%, according to traders, which is well above 51.862% on Thursday.
Reuters says the high interest rates on Leliq are encouraging traders to sell dollars to buy the weight dominated debt, which supports the Argentine currency.
Macri faces difficult economic challenges before the crucial October general election. Argentina has one of the world's highest inflation rates of around 50% last year. In a survey released Wednesday by the central bank, economists raised their forecasts for inflation from 2019 to 31.9%.
In the first two months of this year, the central bank has spent about a billion dollars to try to weaken its weight after it has risen to levels outside the scope of trade agreed with the International Monetary Fund.
Analysts predict that weight will continue to fall to around 48 against the dollar by the end of the year.
In June, the International Monetary Fund (IMF) decided to grant Argentina the most important loan in its history worth $ 50 billion. The international institution has agreed to increase the loan to $ 57.1 billion in an effort to save the country's currency from the ongoing collapse.
The IFAD loan will help Argentina to repay its external commitments, which were recently estimated at $ 28 billion in 2019.
Argentina is emerging from emerging markets, which have recently faced unrest after the drought has caused the third Latin American economy to slip into recession. Worried by the inability of Argentina to serve its foreign debt this year, the peso has become one of the worst currencies in 2018. The currency has lost more than 50% of its value from the start 2018
IMF director Cristian Lagarde said that the Argentine Central Bank has agreed in the framework of the loan agreement to liberalize the exchange rate and not intervene in the foreign exchange market, except in cases of extreme necessity.