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ECONOMY | 30-03-2019 10:08

Markets draw breath after dollar turbulence

Concerns about inflation, negative economic growth and growing uncertainties over the upcoming presidential elections have hurt market confidence.

After a rocky week in which many eyes were glued to the exchange markets, the dollar closed the week in slight retreat yesterday from midweek peaks on the brink of the 45-peso mark. However, yesterday’s closing figure of 44.39 pesos still left the greenback well ahead of Tuesday’s levels, the penultimate day of a seven-day surge totalling a 10-percent devaluation at one stage.

The causes of the peso’s plunge were easier to identify than those for the partial recovery in the second half of the week. Concerns about inflation, negative economic growth and growing uncertainties over the upcoming presidential elections have hurt market confidence.

Country risk was running at 781 points, closing in on the 800-point mark for the first time in three months.

In contrast, the factors taming the dollar after its Wednesday peak of 44.92 pesos were more technical and temporary. Government hints that fixed-term deposits might closer approximate the Leliq rates enjoyed by banks ( t h e c u r r e n t spread is close to 30 percent) gave some encouragement to the peso while Central Bank intervention in Brazil amid global currency problems on emerging markets this month led the market to suspect that the same might occur here.

Until then the peso seemed in a free fall. Only 41 pesos early the previous week, the dollar quickly reached 43 pesos as this week kicked off, climbing to 43.67 the following day before soaring fully three percent to 44.92 on Wednesday.

Although there are plenty of dollars in the background between a likely bumper harvest, International Monetary Fund loans and Central Bank reserves topping 65 billion dollars, few enough came forward last week amid a general tendency to hold back in the expectation of future gains.

CURRENCY CRISIS

The peso, which lost half its value against the dollar last year, has been one of the world’s worst-performing currencies this year, losing 14 percent so far in 2019 up to this week and falling six percent in the last two weeks alone.

The dismal performance has raised fears of a repeat of 2018, when investors dumped the currency amid what President Mauricio Macri called a turbulent year of economic “storms” even if Macri then had to face the consequences of a record summer drought without IMF support.

The devaluation of the peso has been accompanied by a sharp rise in interest rates – up from 44 percent to 67 percent in two months. Argentina now has the highest interest rates in the world.

In response, the Central Bank has signalled a more hawkish stance over the last month, looking to tighten monetary policy in order to tame inflation and protect the peso, which analysts said should limit the recent weakness.

President Mauricio Macri also downplayed the news on Thursday afternoon, saying that “these things happen” and that the US currency had appreciated worldwide, not only in Argentina.

He insisted that Argentina’s “serious monetary policy” would keep it afloat, moving towards an economy less dependent on borrowed money, with lower taxes and greater transparency in spending.

“You do not correct 70 years in three,” said the president.

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