February 6, 2014 / 9:24 PM / 6 years ago

Argentine peso bucks recent weakness on central bank rule change

BUENOS AIRES, Feb 6 (Reuters) - Argentina’s peso, which devalued sharply two weeks ago, rose for the second straight day on Thursday after a rule change by the central bank boosted the dollar supply in the greenback-starved local market.

The peso closed up 0.32 percent at 7.87/7.88 to the U.S. dollar, after rising 1.3 percent on Wednesday. On the parallel black market it recovered 0.97 percent to 12.38/12.43.

Argentina’s currency has held steady at around 8 pesos to the dollar since late January, when it fell 12 percent in a single day. Analysts surveyed in a Reuters poll this week expected it to weaken to 8.2 to the dollar within a month, and 10.70 by the end of the year.

The new central bank rule published on Wednesday states that the net foreign currency position of local banks cannot be more than 30 percent of the bank’s worth. That will push dollars into the spot market and give a mild boost to flagging reserves, analysts said.

“International reserves should increase if the central bank purchases the U.S. dollars sold by the banks, but likely only modestly, as most of those dollars were already deposited at the central bank,” said analysts at BNP Paribas on Thursday.

Argentina’s reserves have been gradually dribbling away - down over 30 percent last year - as the government fights to defend the exchange rate. This week they slipped below $28 billion, standing at $27.85 billion as of Wednesday evening.

The dwindling reserves, weakening peso, rocketing inflation and erratic policymaking have kindled fears of an imminent economic crisis in South America’s No.3 economy, just as jitters hit global emerging markets.

Stronger-than-expected U.S. economic data boosted currencies throughout emerging markets on Thursday.

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