Argentine Peso Collapses 9% to All Time Low As Crisis Deepens


Argentina Central Bank Unexpectedly Hikes Key Rate to 45%

Via Bloomberg

– Pledges to hold rate at that level until at least October
– Cancels daily dollar auction, unveils plan for Lebac reduction

Argentina’s central bank unexpectedly hiked its key rate and unveiled a plan to gradually eliminate the stock of its short-term notes as the peso slumped to a record low amid a broad selloff of developing nation assets.

The bank raised the 7-day Leliq rate 500 basis points to 45 percent, according to an emailed statement. The central bank pledged to hold the rate at this level until at least October. The government canceled its daily dollar auction as well.

The most recent selloff in the peso –the more-than 6 percent drop of the past two days was spurred by concerns Turkey’s problems would infect other emerging markets. Argentina was seen as among the most vulnerable economies.

“They had to do something against contagion,” said Siobhan Morden, the head of Latin America fixed income at Nomura Holdings. “You have to do what you can to minimize financial contagion to the real economy.”

The decision was the fourth surprise rate hike by the central bank this year as inflation refuses to slow. The currency has plunged more than 35 percent this year, the second-worst among emerging market nations after Turkey’s lira. The selloff in Argentine assets that began in April forced the government to turn to the International Monetary Fund for a $50 billion credit line. Still, the economy is set to enter a recession this year.

Last week, the peso fell the most since June, as Turkey’s worsening financial issues dragged emerging market currencies down. The peso was down 2.8 percent Monday to 30.1 per dollar. The peso recovered from its lows of the day after the rate announcement. It was down 2.4 percent to 29.98 per dollar on Monday afternoon after falling as much as 3.6 percent.