Argentina revives peso with mega rate hike

BUENOS AIRES: Argentina’s government and central bank jolted the country’s battered currency back to life on Friday with a set of announcements intended to restore confidence in the president’s ability to deliver sustainable growth while cutting inflation.

The central bank sharply raised its monetary policy rate to 40 per cent, sparking a 4.78 per cent jump in the local peso while the government cut its fiscal deficit target to 2.7 per cent of gross domestic product (GDP).

The moves followed a week of dramatic weakening in the peso, which sank 7.83 per cent just on Thursday to 23 per US dollar. After the announcements on Friday morning, the currency strengthened to 21.95 to the greenback. The bank said in a statement it would keep using all tools at its disposal in its effort to reach the country’s 15 per cent inflation target for this year.

Treasury Minister Nicolas Dujovne told reporters the government stood by the 15 per cent target and supported the central bank’s efforts.

The bank has increased the key rate three times — on April 27, then on Thursday and again on Friday, yanking it up from 27.25 per cent.

Private economists and investors have complained about the slow pace of progress in narrowing the primary fiscal deficit, which does not include interest payments on debt.