Argentina inflation soars to 25.5%
BUENOS AIRES: Argentina’s peso snapped its losing streak on Tuesday, closing 3.73 per cent stronger at 24.10 per US dollar after the central bank sold reserves but before the government reported 12-month inflation at a dizzying 25.5 per cent.
The bank offered to sell up to $5 billion in the spot market to support the local currency. Traders estimated the intervention at about $800 million. Later in the day official data showed April consumer prices rose 2.7 per cent, bringing 12-month inflation to one of the highest rates in the world.
The currency had lost 6.6 per cent to a record low on Monday, having weakened every trading day since May 3. Despite Tuesday’s gain, the peso remained 14.77 per cent weaker since the start of the month and 22.61 per cent so far this year.
The wobbly currency last week drove the government to ask for a “high access stand-by arrangement” from the International Monetary Fund. The deal, which may impose fiscal belt-tightening conditions, is being negotiated in Washington.
The bank had already sold billions of dollars of its reserves and hiked interest rates to 40 per cent.
The IMF negotiations carry political risks for President Mauricio Macri’s reform agenda. Many Argentines blame Imf-backed policies of the late 1990s for Argentina’s 2001-2002 economic meltdown. Some opposition politicians and activists have voiced concerns that the deal being drawn up in Washington will require painful fiscal belt-tightening.
Weak fundamentals, skittishness regarding devaluation and concern over Argentina’s droughthit soy harvest have helped put the economy, and the peso, under pressure. Gross domestic product is nonetheless expected to expand modestly this year.
The peso is one of the world’s hardest-hit currencies as investors leave emerging markets.
Macri’s Cabinet Chief Marcos Pena told reporters on Tuesday that Argentina, and not the IMF, would dictate the terms of any agreement. He called on the country to work to lower Argentina’s deficit, particularly in the 2019 budget.
A man walks past an electronic board showing currency exchange rates in Buenos Aires’ financial district, Argentina.