Tightening the screws: Wall Street eyes high rates, peso strength after Argentina's hawkish turn
By Gabriel Burin and Adam Jourdan
BUENOS AIRES, March 15 (Reuters) - Argentina's world-high
interest rates are likely to stay elevated, while its currency
could be bolstered by central bank moves to tighten monetary
policy, Wall Street analysts said on Friday after the country
unrolled measures to bring down inflation.
The central bank said on Thursday it would extend its "zero
growth" policy for the monetary base until the end of the year,
indicating a level 10 percent below that previously planned, to
help soak up pesos and tame rising prices.
Morgan Stanley said in a note that the central bank was
"tightening the monetary program screws further," suggesting the
bank "won't fall into the same trap" of allowing its policy rate
to fall too low, too fast.
The benchmark rate, set by short-term "Leliq" notes, has
risen around 20 percentage points over the last month after
falling from a high above 70 percent in October to just above 40
percent in the middle of last month.
The recent rate spike came amid growing concern about
resurgent inflation, which jumped 3.8 percent in February, and
renewed fears about a flight from the peso, which lost half its
value against the U.S. dollar last year.
The currency rose 1.98 percent on Friday to a two-week high
of 39.99 per dollar after the central bank moves.
Credit Suisse said another plan announced by the Treasury on
Thursday, to sell $9.6 billion in U.S. dollars by the end of the
year in $60 million daily auctions, would bolster the currency
"These sales should join seasonal agricultural export
inflows in supporting the peso in the coming weeks," the bank
said in a note, referring to the upcoming grains harvest that is
expected to help bring in funds.
Central bank chief Guido Sandleris said on Thursday that
high rates helped protect the peso while inflation was high, but
added the bank would not take any "shortcuts" to tame prices.
Goldman Sachs described inflation levels - running at 51.3
percent over 12 months - as "intense."
Banks added that while the moves should calm volatility for
now, uncertainty would rise ahead of national elections in
October, with left-learning firebrand ex-President Cristina
Fernandez de Kirchner looking to mount a comeback.
"Tight monetary policy and USD inflows from the IMF are
supportive, but volatility has already picked up on the back of
election risk," Bank of America Merrill Lynch said in a note.
"There will likely be higher pressure to hedge the FX if
former President Cristina Kirchner, who is considered
less-market friendly than other potential candidates, announces
she will participate in the race."
(Reporting by Gabriel Burin and Adam Jourdan; Editing by Dan
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