Argentina's central bank said on Monday that it hiked bank reserve requirements by 3 percentage points, following a hike of three percentage points on June 18 as monetary policymakers seek to calm inflation and end a run on the peso currency. The Peso gained 1.9% on Monday against the dollar.
The increase in reserve requirements today will apply only to pesos reserves and will be added to another increase of 3 percentage points that went into effect on June 18 and to the additional 2 percentage points that will come into effect on July 18, the statement said.
The measure is expected to absorb 60 billion pesos (US$ 2.1 billion) in liquidity. Policy makers also increased interest rates on local central bank notes known as Lebacs that come due over the next few months to pay yields as high as 52%.
The steps are part of new central bank chief Luis Caputo’s efforts to stem the selloff in the peso, which has tumbled 34% so far this year. President Mauricio Macri is trying to boost confidence after obtaining a record US$ 50 billion credit line from the International Monetary Fund in the wake of the currency rout.
Markets reacted with the Peso gaining 1.9% Monday to 28.3 per dollar for the biggest advance since May 15.
Likewise the Argentine government anticipated it has no plans to add capital controls, and underlined it will borrow mostly in the domestic market until 2020. Treasury Minister Nicolas Dujovne, Finance Secretary Santiago Bausili and Economic Policy Secretary Guido Sandleris made the announcement to investors during a conference call meant to assuage concerns.
They added that Argentina will borrow mostly in the domestic market in 2018 and 2019 and the government will only raise funds abroad in 2019 to pay for US$ 3 billion of maturing debt.
The most important objective is to regain the confidence of the markets to lower the cost of financing, Dujovne said during the call. That’s our No. 1 objective.