Sat, Sep 01, 2018 - Page 10 News List

Peso plunges as Argentina raises benchmark rate

AP, BUENOS AIRES

Teachers and students from public universities march in Buenos Aires in a massive demonstration to protest a lack of agreement with the government to update teacher salaries and against cuts in the education budget.

Photo: EPA-EFE

The Central Bank of Argentina on Thursday increased its benchmark interest rate to 60 percent — the world’s highest — in an effort to halt a sharp slide in the value of the peso, which plunged to a record low.

The peso fell more than 13 percent against the US dollar on Thursday, closing at an all-time low of 39.2 against the greenback, after slipping about 7 percent the day before.

The central bank said in a statement that it was hiking its benchmark interest rate by 15 percentage points to 60 percent in response to the currency problems and the risk of a greater boost to local inflation, which is already running at about 30 percent a year.

The tumult in the exchange market came a day after Argentine President Mauricio Macri said that he was asking for an early release of some IMF funds under a US$50 billion backup financing arrangement approved earlier.

Some experts said that the announcement, combined with the interest rate hike, had the unintended effect of fueling a crisis of confidence.

“I think today’s interest hike announcement will do nothing but leave investors even more jittery,” Peterson Institute for International Economics senior fellow Monica de Bolle said.

“I’m finding it difficult to understand why, after yesterday’s announcement about front-loading more of the IMF funding, the government thought the hike was warranted. Hyperactivity starts to look like desperation,” De Bolle said.

Macri has struggled to calm markets and bring confidence to Argentines, who continue to lose purchasing power. Many are frustrated with layoffs, higher utility rates and a rise in poverty levels.

Seeing journalists filming screens showing the exchange rates in downtown Buenos Aires, Ruben Montiel, 55, burst out: “Macri is an embarrassment.”

“You can’t live like this. The prices of everything go up on a daily basis,” he said. “There’s no work, utility rates have gone through the roof ... people are sleeping on the streets.”

The peso also slumped against the dollar because rising US interest rates lured investors to pull greenbacks out of Argentina.

That caused jitters among Argentines, who have been used to stashing away dollars as a cushion since the 2001 crisis, when banks froze deposits and put up sheet-metal barricades as thousands of protesters unsuccessfully tried to withdraw their savings.

Dozens died in protests and looting in December 2001 as the economy unraveled and Argentina eventually suffered a record US$100 billion debt default.

“The government will need to shuffle its cabinet and strike deals with provincial governors for next year’s budget,” Argentine economist Marcos Buscaglia said. “In the short-term, the government just needs to stop this crisis.”

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