Argentina surprises with hike

buenos aires — Argentina’s central bank surprised markets on Friday by hiking its key interest rate and intervening with dollar sales to support its peso, while Mexico’s and Brazil’s currencies gained ground after steep, recent losses.

Argentina’s central bank unexpectedly raised its key rate by 3 percentage points to 30.25 per cent after the Argentine peso slumped to an all-time low.

The bank said it sold $1.38 billion on the spot market on Friday. The moves helped the currency rocket back from its low to close little changed on the day.

Analysts said the market had been doubting that the central bank would hike interest rates while the government pushes policies aimed at spurring economic growth ahead of President Mauricio Macri’s expected 2019 re-election bid.

Mexico’s peso and Brazil’s real firmed after mixed US economic data drove investors to pare back bets on a faster pace of US interest rate hikes.

The US economy slowed in the first quarter as growth in consumer spending braked sharply, though labour costs increased more than expected in the period.

“Consumer spending was weak, despite a strong overall reading. We’ll need more clues to justify the recent growth of rate hike bets,” said Mauriciano Cavalcante, the head of currency trading at Ourominas.

Emerging market currencies have slumped in recent weeks due to expectations of accelerating inflation and a widening fiscal deficit that could drive the US Federal Reserve to accelerate policy tightening. That would likely dampen demand for high-yielding assets.

The Mexican peso firmed 0.8 per cent, while the Brazilian real gained 0.4 per cent.

Brazil’s and Mexico’s benchmark stock indexes were little changed, but shares of some companies made big moves following a batch of corporate updates. — Reuters