Argentina’s central bank hiked its benchmark interest rate by the most in six months on Friday in a move aimed at propping up the peso, a day after the currency fell to a record low.
The central bank sold short-term Leliq notes in two auctions at an average yield of 57.89 per cent, taking the benchmark interest rate up 600 basis points from 51.86 per cent on Thursday.
The move, which takes interest rates back to their highest level since mid-January — helped stem demand for dollars, allowing the peso to recover to around 41.2 per dollar after sliding to a record low of 43.4 per dollar on Thursday.
The peso has come under pressure in recent weeks as concerns grow that a sluggish economic recovery and fast inflation could sully President Mauricio Macri’s chances for re-election this year.
The central bank has been struggling to sustain the exchange rate over the past week as concerns about the economy and a looming presidential election spur people to switch to dollars. A slower-than-expected recovery from recession and inflation that is running at annualised pace of nearly 50 per cent are also denting Macri’s chance of winning a second four-year term this October.
Economists warn that the central bank’s decision to hike rates, while still down from peak of more than 70 per cent in October, are hurting the economy, with companies struggling to borrow and consumers putting off large purchases. According to a monthly survey of economists by the central bank, the economy is on track to contract 1.3 per cent and inflation slow to 32 per cent this year, with the peso weakening to 48 per dollar.
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