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Argentina peso stabilizes after central bank increases intervention


By Luc Cohen and Jorge Otaola
BUENOS AIRES/NEW YORK (Reuters) - Argentina's beleaguered peso stabilized in early trade on Friday as the central bank said it would auction a large amount of dollar reserves and investors looked for signs the government would unveil a fiscal package austere enough to calm the markets.
The currency strengthened more 3.48 percent in early Friday trade to 37.8 to the dollar after the central bank said it would auction $675 million in foreign reserves.
"The peso is recovering thanks to the central bank actions," said Gustavo Quintana, a trader at local brokerage Corredores de Cambio.
The bank had offered $500 million per day over recent sessions. Through Thursday the peso had fallen more than 30 percent against the greenback in August.
Two-thirds of that drop came on Wednesday and Thursday after President Mauricio Macri said he would ask the International Monetary Fund to advance disbursements under a $50 billion financing deal. The announcement raised alarms among investors that Argentina might be hard pressed to fund its 2019 deficit.
A policy package marked by further government spending cuts is expected to be announced on Monday. But any more belt tightening will meet strong opposition, as discontent with Macri grows over high inflation, a weak economy and subsidy cuts that have jacked up household heating and water bills.
"If the government fails to deliver a convincing austerity package, the peso will probably slide further and another large interest rate hike would be likely," consultancy Capital Economics said in a research note.
"IMF staff and the Argentine authorities have been working closely to strengthen the Fund-supported arrangement in light of recent market developments," Chief IMF spokesperson Gerry Rice said, adding that "IMF Managing Director Christine Lagarde, Fund staff and Finance Minister Nicolas Dujovne and his team are scheduled to meet on Tuesday to advance the dialogue."
Speaking to reporters on Thursday night, Dujovne said the government would announce a set of new economic measures on Monday, and would target a 2019 primary fiscal deficit below the 1.3 percent of gross domestic product agreed with the IMF.
Earlier that day, the currency closed at a record low 39.25 pesos per dollar. Also on Thursday the central bank hiked its monetary policy interest rate by 15 percentage points to a dizzying 60 percent, a move designed to fight inflation but that will shut down the already scarce amount of credit available to help businesses expand.
Macri's administration is expected to send its proposed 2019 budget to Congress next month. Austerity measures have been unpopular with many Argentines, who blame budget cuts imposed by the IMF for exacerbating the effects of a 2001-02 economic crisis that plunged millions into poverty.
Tens of thousands of people marched through downtown Buenos Aires on Thursday evening demanding higher budgets for public universities and higher salaries for university professors and staff.
Protesters say salaries have been eroded by inflation that clocked in at an annual rate of 31.2 percent in July.
"In the context of the debate over the IMF's adjustment budget, we need to organize to change the economic path," said Vinesa Siley, a lawmaker in Argentina's lower house of Congress aligned with former populist President Cristina Fernandez.
(Additional reporting by Hugh Bronstein, Scott Squires, Gabriel Burin and Rodrigo Campos in New York; Editing by Leslie Adler and Steve Orlofsky)

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First Published: Aug 31 2018 | 9:07 PM IST

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