Argentina hiked interest rates for a third time in eight days as it announced tighter government spending targets.
Argentina’s central bank hiked rates to 40% on Friday as part of an effort to support the Argentine peso, which has lost a quarter of its value since the beginning of the year.
The country is in the middle of a pro-market economic reform programme under president Mauricio Macri.
Macri is attempting to reverse years of protectionism and high levels of government spending.
Inflation in Argentina was 25% last year, the second highest rate in Latin America after Venezuela.The central bank set an inflation target of 15% and said it will continue to act to enforce it.
Treasury minister Nicolás Dujovne said the country remains committed to cuts on infrastructure spending and to target the country’s primary fiscal deficit at 2.7 percent of GDP, down from 3.2 percent this year.
Edward Glossop, Latin America economist at Capital Economics was quoted by The Guardian as saying:
“Risks to the peso have been brewing for a while – large twin budget and current account deficits, a heavy dollar debt burden, entrenched high inflation and an overvalued currency.
“The real surprise is how quickly and suddenly things seem to be escalating.”
Claudio Loser, founding member and director of Centennial Group Latin America, told Bloomberg:
“Investors gave Macri about a year and a half of a grace period to put the house in order. After that they started to worry.
“Now that the fiscal adjustment remains weak, inflation unwavering, and U.S. bonds more attractive, investors are evidently losing their patience.”
The Argentine peso rebounded after the announcement, trading 5.2 percent higher at 21.80 per dollar.