argentina peso plunges as interest rate hiked to 60

Written by The ReReport

ARGENTINA”™S Central Bank on Thursday increased its benchmark interest rate to 60 per cent ”” 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 15 per cent against the US dollar on Thursday, trading at 40.5 per greenback, after slipping about 7 per cent the day before.The Central Bank said in a statement that it was hiking its benchmark interest rate by 15 percentage points to 60 per cent in response to the currency problems and the risk of greater impact on local inflation, which is already running at about 30 per cent a year.The tumult in the exchange market came a day after President Mauricio Macri said he was asking for an early release of some IMF funds under an $US50 billion backup financing arrangement approved earlier.Some experts said the announcement, combined with the interest rate hike, had the unintended effect of fuelling the crisis of confidence.“I think today’s interest hike announcement will do nothing but leave investors even more jittery,” said Monica de Bolle, senior fellow at the Peterson Institute for International Economics.“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.”Macri has struggled to calm markets and bring confidence to Argentines who continue to lose purchasing power. Many are frustrated with lay-offs, higher utility rates and a rise in poverty levels.media_cameraGraffiti reading ”˜Macri lies”™ in Buenos Aires. Picture: Natacha Pisarenko/APmedia_cameraA taxi driver during 2002 protests in the financial district. Picture: Ali Burafi/AFPmedia_cameraA 2006 protest against a court ruling on the dollar-peso conversion.Many also have bad memories of the IMF and blame its free-market economic policies for contributing to the country’s worst crisis in 2001-2002, when one of every five Argentines went unemployed and millions fell into poverty.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. There’s no work, utility rates have gone through the roof … people are sleeping on the streets.”Macri, a pro-business conservative who came into office in 2015, had promised to trim Argentina’s fiscal deficit, reduce poverty and curb inflation. He cut red tape and tried to reduce the government’s budget deficit by ordering lay-offs and cutting utility subsidies, but it triggered labour unrest.Then in December, officials announced a rise in the inflation target, which caused investors to begin doubting Macri’s commitment to taming price rises. Meanwhile, the peso slumped against the dollar as 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 unravelled and Argentina eventually suffered a record $US100 billion debt default.“The government will need to shuffle its cabinet and strike deals with provincial governors for next year’s budget,” said Argentine economist Marcos Buscaglia.“In the short-term, the government just needs to stop this crisis.Associated Press video journalist Paul Byrne contributed to this report.Originally published as The world”™s highest interest rates

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