Ar­gentina in­fla­tion soars to 25.5%

The Gulf Today - Business - - INTERNATIONAL -

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.

Reuters

A man walks past an elec­tronic board show­ing cur­rency ex­change rates in Buenos Aires’ fi­nan­cial district, Ar­gentina.

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