100 Argentine peso notes are displayed for a photograph in Buenos Aires, Argentina. (Photographer: Diego Giudice/Bloomberg)

Argentina Steps Up Fight to Defend Peso With Third Hike in Week

(Bloomberg) -- Argentina raised its key interest rate for a third time in a week, stepping up the fight against a selloff in its currency, after the peso posted its worst drop in more than two years on Thursday.

Policymakers raised the rate by 675 basis points to 40 percent from 33.25 percent on Friday, according to a statement sent by email. The central bank said it will continue to use all tools at its disposal to avoid disruptions in the markets and guarantee a slowdown in inflation. The central bank also said that it was reducing the requirement for bank holdings in foreign currencies to 10 percent from 30 percent, effective May 7.

The peso has dropped 17 percent this year against the dollar, and plunged 8.5 percent on Thursday, the worst decline since December 2015. The currency rebounded on Friday after the bank’s announcement. It traded 0.6 percent higher to 22.24 per dollar at 9:15 a.m. in New York.

"The monetary authority took these decisions with the objective of avoiding disruptive behavior in the exchange rate, as well as to guarantee the disinflation process, and is ready to act again if necessary," the central bank said in a statement.

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