The Buenos Aires Stock Exchange plunged eight percent Monday, pulled down by sharp declines in prices for energy and bank shares amid market volatility.
The Merval Index dropped 8.33 percent to 27,636 points, with energy stocks taking hits of up to 12 percent following the departure of Energy Minister Juan José Aranguren from the government.
Meanwhile, the peso closed at 28.41 pesos per US dollar, an appreciation of 1.58 percent.
The stock market drop comes on the eve of a "Super Tuesday," the date when Central Bank's debt – equivalent to nearly one third of its reserves – is renewed. If investors do not renew the debt, there is likely to be an increased demand for the US greenbacks, making the peso less valuable.
Analysts also cited rumours that Morgan Stanley may opt not to include Argentina in its Emerging Markets index (MSCI Emerging Markets Index) for another year. If approved, altering the country's stance from a 'Frontiers' market, more investment is anticipated.
On Monday, the Clarín newspaper reported that Argentina's "ascent" would be postponed for another year. A decision is expected Wednesday.
The government of President Mauricio Macri and the International Monetary Fund (IMF) announced in early June that the two parties had agreed a US$50-billion standby loan. The government is seeking to help to bolster market confidence following a currency crisis in April and May.
Last week President Macri replaced Central Bank head Federico Sturzenegger with the former finance minister, Luis Caputo, a former Deutsche Bank executive. Caputo's main task is to prevent a run on the peso, which has lost nearly 35 percent of its value since January.
On Monday, the Central Bank said it would lift reserve requirements for banks by five percentage points in a move expected to absorb 100 billion pesos (US$3.63 billion) from the financial system. These would be staggered, with three extra percentage points having to be in place by June 21 and two more by July 18. Banks are currently required to keep 20 percent of deposits in reserves.
On Saturday Macri dismissed two Cabinet ministers, Aranguren, the former president of Anglo-Dutch oil company Shell in Argentina, and production minister Francisco Cabrera.
Macri was forced to defend Aranguren in March after the minister admitted keeping his US$88-million fortune abroad because he lacked faith in the domestic economy. Javier Iguacel – previously the head of the agency that oversees Argentina’s road network – replaced him in the post. Iguacel is expected to introduce a more moderate scheme of tariff adjustments than Aranguren.
Speaking Sunday, newly appointed Production Minister Dante Sica said that an exchange rate of between 28 and 29 pesos per dollar would be “comfortable” for the industrial sector.
Sica, an economist by trade, told the La Once Diez radio station that such a rate would provide firms with “predictability.”