Argentina's central bank hikes rates to 60% as the currency collapses

[climber7]

What in the world is happening to all the S.A. currencies?!

 

I copy/pasted the entire article a few times to paste here but it won't work.   Here's the link....

 

https://www.cnbc.com/2018/08/30/argentina-crisis-peso-crashes-to-record-low-amid-imf-plea.html

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Argentina's central bank hikes rates to 60% as the currency collapses

• Investors are increasingly concerned Latin America's third-largest economy could soon default as it struggles to repay heavy government borrowing.

 

• The peso is down more than 45 percent against the greenback this year, exacerbating pre-existing fears over the country's weakening economy and inflation running at 25.4 percent this year.

 

• "I know that these tumultuous situations generate anxiety among many of you ... I understand this, and I want you to know I am making all decisions necessary to protect you," Macri said.

 

Published 15 Hours Ago  Updated 10 Hours Ago

CNBC.com

 

 

Emerging markets fall as Argentine peso plunges to record low  8 Hours Ago | 01:31

 

Argentina is struggling to cope with yet another financial crisis.

 

 

Investors are increasingly concerned Latin America's third-largest economy could soon default as it struggles to repay heavy government borrowing. This comes after Argentina's government unexpectedly asked for the early release of a $50 billion loan from the International Monetary Fund (IMF) on Wednesday.

 

The Argentine peso crashed to record lows on the news. It saw steep losses in the previous session and collapsed another 15 percent to hit 39 pesos against the U.S. dollar on Thursday morning.

 

The peso is down more than 45 percent against the greenback this year, exacerbating pre-existing fears over the country's weakening economy while inflation is running at 25.4 percent this year.

 

On Thursday, the central bank said it was increasing the amount of reserves that banks have to hold, in a bid to tighten fiscal policy and shore up the currency. It hiked rates by 15 percentage points to 60 percent from 45 percent and promised not to lower them at least until December.

Argentina's economy 'likely to contract this year'

The IMF said in a statement Wednesday that it would look to "revise the government's economic plan with a focus on better insulating Argentina from recent shifts in global financial markets."

 

The Washington D.C.-based institute also added that its plan included "stronger monetary and fiscal policies and a deepening of efforts to support the most vulnerable in society."

 

"It is now unclear if that will be enough to stabilize the government's finances amid (a) persistent reserve drain," Deutsche Bank's Jim Reid said in a research note published Thursday.

 

In addition to IMF support, Argentina's government has also raised interest rates to 45 percent in an attempt to curb inflation and slow the peso's dramatic slide.

 

But the world's highest interest rate levels as well as backing from the IMF have both failed to significantly improve market sentiment.

 

"Real rates are not tight enough to encourage capital inflows (so) the economy is likely to contract this year," Reid said.

A number of emerging market countries, including Argentina, Turkey and Brazil, are feeling the impact as tighter monetary policy from the U.S. Federal Reserve has boosted the dollar.

Tumultuous times

In a televised address on Wednesday, Argentine President Mauricio Macri said: "We have agreed with the IMF to advance all the necessary funds to guarantee compliance with the financial program next year."

 

"This decision aims to eliminate any uncertainty … Over the last week we have seen new expressions of lack of confidence in the markets, specifically over our financing capacity in 2019," he added.

Sean Gallup | Getty Images

Argentinian President Mauricio Macri

When Argentina's government agreed the terms of the loan with the IMF in May, Macri said he anticipated his country's economy would recover and so they did not plan to use the money.

 

Buenos Aires was forced to strike a deal with the IMF after a sharp depreciation in the peso. The three-year standby financing agreement is designed to improve the country's ailing economy and help it fight inflation — which at nearly 30 percent per year is one of the highest rates worldwide.

 

Nonetheless, some analysts have criticized the decision to speed up the IMF bailout, saying it smacks of desperation.

Many people in Argentina blame the IMF for encouraging fiscal policies that escalated the country's worst economic crisis in 2001. At that time, millions of middle-class citizens fell into poverty as the country struggled to recover.

 

"I know that these tumultuous situations generate anxiety among many of you ... I understand this, and I want you to know I am making all decisions necessary to protect you," Macri said.

 

Sam MeredithDigital Reporter, CNBC.com

 

 

Edited August 31, 2018 by Markinsa
Added text of article

[climber7]

Thanks for the assist! 

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Argentina is running out of tools to lift its plunging currency

BY DESMOND LACHMAN, OPINION CONTRIBUTOR —  09/05/18 03:30 PM EDT 103

THE VIEWS EXPRESSED BY CONTRIBUTORS ARE THEIR OWN AND NOT THE VIEW OF THE HILL 

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© Getty Images

It would be a gross understatement to say that all is not well with the Argentine economy.

Despite a $50-billion support package from the International Monetary Fund (IMF), the Argentine peso is in freefall, inflation is accelerating and the economy is heading toward yet another deep recession.

This has to raise questions as to whether it will be Argentina rather than Turkey that is the first to impose exchange controls in response to their respective economic crises.

Since the middle of this year, nothing seems to have worked to stabilize the Argentine peso, which has lost almost half of its value since the start of the year, making its performance even worse than that of Turkey.

Hiking interest rates to a staggering 60 percent has not seemed to work. Burning international reserves to defend the currency has not worked. Calling in the IMF hasn't done the trick either. Indeed, since a $15-billion IMF disbursement in June, the Argentine peso has managed to lose another quarter in value.

Argentina needs to stabilize its currency soon before a free-falling peso inflicts further damage to its fragile economy by stoking inflation, which is already running at more than 30 percent.

This would seem to be especially the case with likely spillovers to Argentina from a brewing currency crisis in Brazil ahead of that country’s contentious October presidential election.

It would also seem to be the case in the context of generalized emerging market currency weakness fueled by rising U.S. interest rates and a strengthening dollar. 

However, Argentina seems to be running out of policy instruments to put a floor under its currency. Interest rates have been raised to their practical limit, the IMF has already been called in to little avail, and the country has only limited international reserves to use in defense of its currency.

Meanwhile, a clear move to greater fiscal discipline to restore investor confidence would seem to be a politically implausible option. Budget belt tightening will likely deepen the economic recession toward which the country now seems to be lurching.

Furthermore, the Macri government does not seem to have the political support for such belt-tightening, especially ahead of next year’s general election. Since having called in the IMF for assistance, President Macri has seen his support at the polls plummet from 50 percent to below 35 percent.

In December 2015, at the start of his presidency, the Macri government made the crucial mistake of lifting all exchange controls before stabilizing the Argentine economy and before aggressively embracing deep economic reforms.

It was like putting the cart before the horse in a country that is no stranger to currency and banking-sector crises.

The Macri government is paying dearly for that mistake. With the currency still in freefall and with other options having run out, President Macri cannot expect the IMF to pony up even more billions of dollars to finance massive capital flight from that country.

Rather, he may very well soon be forced to reintroduce exchange controls to put an end to the currency’s damaging free fall.

Deep as the Argentine economic and political crisis might be, Argentina would seem to be too small by itself to produce emerging market contagion. However, one would think that the reintroduction of Argentine capital controls would remind emerging market investors about the risks of investing in those markets.

Hopefully, Federal Reserve Chairman Jerome Powell is paying close attention to the unfolding economic crises in Argentina, Brazil, South Africa and Turkey. Maybe then the Federal Reserve will not get caught flat-footed in responding to an emerging market crisis that has the potential to derail the global economic recovery. 

Desmond Lachman is a resident fellow at the American Enterprise Institute. He was formerly a deputy director in the International Monetary Fund's Policy Development and Review Department and the chief emerging market economic strategist at Salomon Smith Barney.

 

 

 

 

 

 

http://thehill.com/opinion/finance/405138-argentina-is-running-out-of-tools-to-lift-its-plunging-currency