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Saturday June 6th, 2020 1:16PM

Argentina hikes interest rate to 60 percent; peso plunges

By The Associated Press
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BUENOS AIRES, Argentina (AP) — Argentina's Central Bank on Thursday increased its benchmark interest rate to 60 percent — the world's highest — in an effort to halt a sharp slide in the value of the peso, which plunged to a record low.

The peso fell more than 13 percent against the dollar on Thursday, closing at an all-time low of 39.2 per greenback, after slipping about 7 percent the day before.

The Central Bank said in a statement that it was hiking its benchmark interest rate by 15 percentage points to 60 percent in response to the currency problems and the risk of greater impact on local inflation, which is already running at about 30 percent a year.

The tumult in the exchange market came a day after President Mauricio Macri said he was asking for an early release of some IMF funds under an $50 billion backup financing arrangement approved earlier.

Some experts said the announcement, combined with the interest rate hike, had the unintended effect of fueling the crisis of confidence.

"I think today's interest hike announcement will do nothing but leave investors even more jittery," said Monica de Bolle, senior fellow at the Peterson Institute for International Economics.

"I'm finding it difficult to understand why, after yesterday's announcement about front-loading more of the IMF funding, the government thought the hike was warranted. Hyperactivity starts to look like desperation."

Macri has struggled to calm markets and bring confidence to Argentines who continue to lose purchasing power. Many are frustrated with layoffs, higher utility rates and a rise in poverty levels.

Many also have bad memories of the IMF and blame its free-market economic policies for contributing to the country's worst crisis in 2001-2002, when one of every five Argentines went unemployed and millions fell into poverty.

Seeing journalists filming screens showing the exchange rates in downtown Buenos Aires, Ruben Montiel, 55, burst out: "Macri is an embarrassment!

"You can't live like this. The prices of everything go up on a daily basis," he said. "There's no work, utility rates have gone through the roof ... people are sleeping on the streets."

Macri, a pro-business conservative who came into office in 2015, had promised to trim Argentina's fiscal deficit, reduce poverty and curb inflation. He cut red tape and tried to reduce the government's budget deficit by ordering layoffs and cutting utility subsidies, but it triggered labor unrest.

Then in December, officials announced a rise in the inflation target, which caused investors to begin doubting Macri's commitment to taming price rises.

Meanwhile, the peso slumped against the dollar as rising U.S. interest rates lured investors to pull greenbacks out of Argentina.

That caused jitters among Argentines, who have been used to stashing away dollars as a cushion since the 2001 crisis, when banks froze deposits and put up sheet-metal barricades as thousands of protesters unsuccessfully tried to withdraw their savings. Dozens died in protests and looting in December 2001 as the economy unraveled and Argentina eventually suffered a record $100 billion debt default.

"The government will need to shuffle its cabinet and strike deals with provincial governors for next year's budget," said Argentine economist Marcos Buscaglia. "In the short-term, the government just needs to stop this crisis.

__

Associated Press video journalist Paul Byrne contributed to this report.

  • Associated Categories: Associated Press (AP), AP Business, AP Business - Economy, AP Business - Financial Markets, AP Business - Industries, AP Business - Financial Services
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