June 12, 2018 / 7:03 PM / 2 months ago

UPDATE 3-Argentina's peso firms as central bank sells dollars, holds rate

(Adds official amount sold by central bank)

BUENOS AIRES, June 12 (Reuters) - Argentina’s peso strengthened on Tuesday, breaking two sessions of losses as the central bank said it sold some $695 million, returning to the spot market despite signaling last week that exchange rate volatility had passed.

The peso closed up 1.4 percent at 25.75 per U.S. dollar, rebounding from a record low of 26.20 touched on Monday. Traders said the central bank, along with state-run Banco Nacion, had offered to sell dollars at various times and at several different levels.

“Only the dollars from the state-run banks can calm the foreign exchange tension,” one trader said on condition of anonymity, adding that other market actors were expecting further depreciation and were holding onto their dollars as a result.

“There are no signs that private investors want to sell.”

A run on the peso prompted Argentina to announce on May 8 that it was turning to the International Monetary Fund for assistance. The central bank hiked interest rates to 40 percent, the world’s highest, and for weeks repeatedly offered to sell $5 billion in reserves at 25 pesos per dollar, effectively preventing the peso from falling below that level.

But the monetary authority withdrew that offer on Friday, the day after its $50 billion standby arrangement with the IMF was announced. Central bank Governor Federico Sturzenegger had said on Thursday the exchange rate “turbulence” had been “surpassed,” foreshadowing the withdrawal of the offer.

The central bank held its policy rate steady at 40 percent on Tuesday, arguing that while May inflation would likely be lower than private-sector estimates, it appeared to be picking up in June. Government statistics agency Indec was expected to publish May inflation figures on Thursday.

“This scenario demands a decisive response,” the central bank said in a statement. “This institution is committed to maintaining a contractive bias in monetary policy until it observes tangible signals that both inflation and inflation expectations are starting to decline.” (Reporting by Jorge Otaola; writing by Luc Cohen; editing by David Gregorio, Tom Brown and Jonathan Oatis)

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