Imports, Exports, and Exchange Rates: Crash Course Economics #15
Argentina hikes interest rate to 60% in failed effort to stem peso plunge
Ball in IMF’s court to stave off currency crisis: analyst
Currency exchange values on display at a currency exchange in Buenos Aires Wednesday.
Argentina’s central bank delivered a huge, emergency rate hike Thursday in an effort to halt a plunge by the country’s currency. It didn’t seem to work.
In an unscheduled meeting, the central bank announced it had raised its policy rate to 60% from 45% and pledged not to cut the rate until at least December. The bank also raised reserve requirements on peso deposits effective Sept. 1.
But after a brief pause, the Argentine peso
resumed a tumble that had begun a day earlier when President Mauricio Macri asked the International Monetary Fund to speed up the delivery of a $50 billion bailout package. The peso was down by around 12% versus the U.S. unit, trading at 38.625 a dollar. In the wake of the rate hike it had continued to fall, weakening as far as 41.50 a dollar, representing an all-time low.
Meanwhile Exchange Traded Notes Pay Interest , the peso’s collapse and continued pressure on the Turkish lira
ensured concerns about emerging markets remained on investors’ radar screens, analysts said.
Argentine peso plunge, Turkey woes keep emerging markets in spotlight
While Macri’s request appeared to be an effort to soothe investors, it had the opposite effect, analysts said, with the peso tumbling to an all-time low Wednesday on worries about Argentina’s economy and its ability to meet debt payments. The carnage continued despite IMF Managing Director Christine Lagarde saying Wednesday that the fund was ready to assist the government in developing revised policy plans.
That means investors want to see more details from the IMF, said Jakob Eholdt Christensen, head of emerging market research at Danske Bank, in a Thursday note.
He expects the IMF to respond by frontloading assistance, including an emergency disbursement and an increase in the size of the program in return for the central bank’s emergency hike and the activation of some additional fiscal measures. If pressure on the peso doesn’t let up in coming days, capital controls can’t be ruled out, Christensen said.
Frontloaded IMF assistance and other measures alongside the rate increase should provide some near-term stability to the peso, Christensen said, but warned that the IMF’s credibility is at stake.
“The fact that only two months ago the IMF had to revise and augment the program is embarrassing,” he said. “The Argentinian authorities have followed the program and implemented a traditional cocktail of IMF measures, letting the currency float while tightening fiscal and monetary policies.”
Meanwhile, two exchange-traded funds that track Argentina’s equity markets
. The iShares MSCI Argentina & Global Exposure ETF
fell 7.6%, while the Global X MSCI Argentina ETF
U.S. stocks drifted lower Thursday, with the S&P 500
off 0.5% and the Dow industrials
declining around 144 points, or 0.5%.
Providing critical information for the U.S. trading day. Subscribe to MarketWatch's free Need to Know newsletter.
William Watts is MarketWatch's deputy markets editor, based in New York. Follow him on Twitter @wlwatts.
Exchange Traded Notes Pay Interest
Cronos stock plunges 30% after Citron short call, report of Trump anti-marijuana effort
Here’s why Coca-Cola is muscling into the coffee-shop business in a big way
Elon Musk tweets ‘!’ after watching this crazy footage of an airborne Tesla
Who Will Fill the Bipartisan Role of Sen. John McCain?
0 Reviews:
Post Your Review