Argentine Peso Sinks to Record Low Amid Emerging-Market Rout

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(Bloomberg) -- Argentina’s peso sank to a record low, tracking a rout in global emerging markets, as authorities scrambled to arrest the currency’s 10 percent collapse in less than two weeks. Stocks and credit markets also slid.

With the central bank set to hold a regular weekly meeting after markets close, President Mauricio Macri and Treasury Minister Nicolas Dujovne scheduled midday speeches, stirring speculation the government may take further steps to stabilizing the plummeting peso.

South America’s second-largest economy is proving just as vulnerable as emerging-market peers to rising U.S. Treasury yields and a strong dollar. The government is running out of options to stop the currency’s depreciation after the central bank raised interest rates last week to a world-record 40 percent.

"The central bank has lost control of their monetary/currency policy and is now subject to much greater market forces,” said Michael Roche, a fixed-income strategist at Seaport Group in New York. “The switch from a weak USD to strong dollar is resetting the global investment landscape and relative valuations, particularly in emerging markets."

The peso fell as much as 2 percent to 23.1 per dollar, passing a previous record that on Thursday prompted the central bank to unexpectedly raise rates a day later. The central bank sold short-term notes known as Lebacs in secondary markets, pushing rates to as high as 42 percent for the shortest notes.

Argentina raised rates on Friday for the third time in eight days. The magnitude of the central bank’s moves underscores challenges faced by President Macri as he attempts to stoke economic growth and roll back protectionist measures put in place by his predecessor, Cristina Fernandez de Kirchner.

Not even positive comments by Franklin Templeton bond-fund manager Michael Hasenstab, who said Argentina is a “long-term buy,” were enough to buoy the currency.

“Argentina is an important example of when a policy mistake occurs -- the central bank was too loose -- will it be corrected?” Hasenstab, who manages the $38 billion Templeton Global Bond Fund, said in an interview with Bloomberg Television. “In Argentina’s case, yes, they have reversed that mistake and will get back on track.”

Argentine Market Snapshot:

  • Argentina’s five-year credit default swaps rose to 389, the highest level since January
  • The peso was the worst performer among emerging markets, as the Bloomberg Dollar Spot Index gained for a third day
  • The yields on the nation’s century bonds rose to a record 8.5 percent
  • New York-traded Argentine stocks also fell as much as 14 percent, with electricity distributor Edenor leading losses

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