Argentina’s peso currency closed down 3.11% on Wednesday at an all-time low of 21.2 per U.S. dollar, even as the central bank continued selling dollars to try to halt the slide of the local currency, traders said. The currency’s sustained weakening showed a lack of investor confidence in Latin America’s third largest economy, which is blighted by one of the world’s highest inflation rates.
The central bank sold about US$ 400 million in the foreign exchange market as of early afternoon, traders said, an amount that was likely to increase when an official count is provided at the end of the day.
The bank said it sold a total US$ 3.7 billion in the last three days of last week. The action culminated on Friday in a surprise hike of the bank’s key interest rate to 30.25% from 27.25%.
Argentina’s local stock index rose 77% last year and investors even gobbled up a 100-year bond as President Mauricio Macri’s strong performance in mid-term elections spurred hopes for more market friendly reforms. But investors have more recently woken up to the country’s vulnerabilities.
“The forces driving the peso lower are unlikely to abate,” Capital Economics said in a report on Wednesday, pointing to a current account deficit equivalent to 5 percent of gross domestic product as well as high inflation.
Local brokerage Delphos Investment said in a report the recent pace of dollar selling was not sustainable. It also said the implementation of a capital gains tax for foreign investors last month had led to a decrease in foreign capital entering Argentine markets.
Consumer prices in Argentina rose 2.3% in March, slightly down from the 2.4% increase in February. Twelve-month inflation was 25.4%, the same level as February.