Argentina boosts rate in second surprise move

Bloomberg

Argentina hiked interest rates for the second time in less than a week to stem the peso’s sharp decline, a tactic that many investors say will again bring only temporary relief.
The central bank raised its key interest rate to 33.25 percent, the central bank’s press office said. The peso has fallen more than 5 percent since the day when the bank raised borrowing costs by the same amount at a surprise meeting.
“The hike was necessary, but it looks like the market is asking for more,” said Joaquin Almeyra, fixed income trader at Bulltick LLC in Miami, pointing to a muted reaction in one-month peso futures after the central bank’s move.
Analysts said when the bank unexpectedly raised rates days after it held borrowing costs steady, that the effort might only be the beginning unless the currency was to stabilize. Instead, the peso resumed its decline when markets opened yesterday after a two-day holiday, accumulating a 5 percent decline, while emerging market currencies have fallen
0.5 percent.
The central bank and President Mauricio’s Macri’s government will work together so that inflation will ease towards the 2018 target of 15 percent, Marcos Pena, Macri’s cabinet chief, said in an emailed statement after the rate increase.
The central bank “has the independence, tools and resources to deal with situations of volatility,” he said. The peso has now slumped almost 14 percent this year against the dollar and looks set to fall further to keep pace with consumer prices still stuck far above the official 15 percent target. With annual price increases running at a double-digit pace, the currency will need to depreciate by a similar amount to keep the exchange rate stable in real terms. The central bank has spent almost 10 percent of its reserves this year to stem the peso’s decline, including $4.3 billion last week.