Skip to comments.Argentina's central bank hikes rates to 60% as the currency collapses
Posted on 08/30/2018 10:50:10 AM PDT by Red Badger
Investors are increasingly concerned Latin America's third-largest economy could soon default as it struggles to repay heavy government borrowing. The peso is down more than 45 percent against the greenback this year, exacerbating pre-existing fears over the country's weakening economy and inflation running at 25.4 percent this year. "I know that these tumultuous situations generate anxiety among many of you ... I understand this, and I want you to know I am making all decisions necessary to protect you," Macri said.
Argentina is struggling to cope with yet another financial crisis.
Investors are increasingly concerned Latin America's third-largest economy could soon default as it struggles to repay heavy government borrowing. This comes after Argentina's government unexpectedly asked for the early release of a $50 billion loan from the International Monetary Fund (IMF) on Wednesday.
The Argentine peso crashed to record lows on the news. It saw steep losses in the previous session and collapsed another 15 percent to hit 39 pesos against the U.S. dollar on Thursday morning.
The peso is down more than 45 percent against the greenback this year, exacerbating pre-existing fears over the country's weakening economy while inflation is running at 25.4 percent this year.
On Thursday, the central bank said it was increasing the amount of reserves that banks have to hold, in a bid to tighten fiscal policy and shore up the currency. It hiked rates by 15 percentage points to 60 percent from 45 percent and promised not to lower them at least until December. Argentina's economy 'likely to contract this year'
The IMF said in a statement Wednesday that it would look to "revise the government's economic plan with a focus on better insulating Argentina from recent shifts in global financial markets."
The Washington D.C.-based institute also added that its plan included "stronger monetary and fiscal policies and a deepening of efforts to support the most vulnerable in society."
"It is now unclear if that will be enough to stabilize the government's finances amid (a) persistent reserve drain," Deutsche Bank's Jim Reid said in a research note published Thursday.
In addition to IMF support, Argentina's government has also raised interest rates to 45 percent in an attempt to curb inflation and slow the peso's dramatic slide.
But the world's highest interest rate levels as well as backing from the IMF have both failed to significantly improve market sentiment.
"Real rates are not tight enough to encourage capital inflows (so) the economy is likely to contract this year," Reid said.
A number of emerging market countries, including Argentina, Turkey and Brazil, are feeling the impact as tighter monetary policy from the U.S. Federal Reserve has boosted the dollar. Tumultuous times
In a televised address on Wednesday, Argentine President Mauricio Macri said: "We have agreed with the IMF to advance all the necessary funds to guarantee compliance with the financial program next year."
"This decision aims to eliminate any uncertainty Over the last week we have seen new expressions of lack of confidence in the markets, specifically over our financing capacity in 2019," he added.
When Argentina's government agreed the terms of the loan with the IMF in May, Macri said he anticipated his country's economy would recover and so they did not plan to use the money.
Buenos Aires was forced to strike a deal with the IMF after a sharp depreciation in the peso. The three-year standby financing agreement is designed to improve the country's ailing economy and help it fight inflation which at nearly 30 percent per year is one of the highest rates worldwide.
Nonetheless, some analysts have criticized the decision to speed up the IMF bailout, saying it smacks of desperation.
Many people in Argentina blame the IMF for encouraging fiscal policies that escalated the country's worst economic crisis in 2001. At that time, millions of middle-class citizens fell into poverty as the country struggled to recover.
"I know that these tumultuous situations generate anxiety among many of you ... I understand this, and I want you to know I am making all decisions necessary to protect you," Macri said.
Their last president took every citizen's IRA and 401K funds and now they are gone...................
I won’t cry for Argentina.
It’s been a decade since they ‘stole’ the IRA accounts (30-billion dollars worth at that point). The thing about the country is that you only have 43-million people.
If they had some Trump-like guy and gave capitalism a chance....they could rebuild the economy and be the second biggest economic giant of the Americas.
Their last president took every citizen’s IRA and 401K funds and now they are gone...................””’
Argentina did that trick TWICE.
Obama & Pelosi talked far too much about doing the same thing here.
Same Argentine-know-how that’s working its magic on the Catholic Church.
The country that produced Che Guevara.
Argentina and Brazil should be economic superpowers in South America. But their embrace of Socialist policies will ruin them in the long run.
With that kind of ROI, the banksters will be all over this. Just like in the 80s when they got MBAs by having made loans to Mexico, Brazil and Argentina.
And it is those tactics that cause the wealthy to move their money and later themselves, out of Argentina.
Wait, they already did that!
Argentine voters will respond by blaming Yanqui Imperialism and the IMF, and will double-down on the Socialism.
Don’t come to us looking for a handout.
Once upon a time Argentina was a prosperous country.
Time to attack the Falklands again.
The current leadership has inherited problems created in the reign of the Peronista Kirchners (first the husband then the wife) that preceded the present administration.
Unfortunately, the current administration will likely take the fall for those problems and cede power in the next elections to the Personistas that created them. Such is the political cycle of Argentina ever sense the first Peronista - Juan Peron.
Marxists and socialists are like demons in human form.
“””Once upon a time Argentina was a prosperous country.”””
Yes they were until the Peronistas took over.
Until recently Argentina was a great place to visit. Now I would not go there as a tourist. When countries become financially unstable they get clobbered in so many ways.
But it was the choice of the majority of Argentinians to keep voting for socialist policies that they did not fund.
In addition to IMF support, Argentina's government has also raised interest rates to 45 percent in an attempt to curb inflation and slow the peso's dramatic slide... Buenos Aires was forced to strike a deal with the IMF after a sharp depreciation in the peso. The three-year standby financing agreement is designed to improve the country's ailing economy and help it fight inflation -- which at nearly 30 percent per year is one of the highest rates worldwide... Many people in Argentina blame the IMF for encouraging fiscal policies that escalated the country's worst economic crisis in 2001.
45 percent interest rates, because they couldn't live with 30 percent inflation. Yeah, good call. Maybe they should invade the Falklands again. Thanks Red Badger.
It’s a shame. I’ve friends in Argentina and have been there three times. A country with great potential that clearly demonstrates that Socialism destroys everything it touches.
Socialism apparently has this siren song that is hard to resist where everyone believes a fairy tail that all will be bliss, everything will be free, and no one will lack for anything.
Sadly, to some extent Argentina, and more so Brazil, could have been an economic powerhouse on a global scale, but like Venezuela, they bought into the lie from the pit of Hell, that the rich were to blame and if the political leaders simply confiscated all the wealth from “the rich” then the lazy would be set for life and their troubles would be over.
Not much different than the Democrats effort to promise a “free” living wage to everyone.
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