The Argentine Central Bank raised its benchmark interest rate from 45 percent to 60 percent on Thursday in a dramatic but unsuccessful bid to shore up the peso, which plummeted to a record low against the dollar.
Despite the bank's extraordinary measure to impose one of the highest reference rates in the world, the currency lost 13.5 percent more at the close, its biggest daily loss of the year.
The Argentine currency has now lost 53 percent of its value since the beginning of the year, to trade at 39.87 per dollar. It was worth around 18 per dollar at the beginning of the year.
Before, Marcos Peña, the chief of staff of President Mauricio Macri, was forced to deny that the government was facing an economic disaster.
"We are not facing an economic failure," Peña said.
"This is a transformation, not a failure, there are difficult moments in that transformation," he said.
Rating agency Moody & s said the Central Bank measure "is a clear signal that economic policy approaches have not been enough to contain the financial pressures Argentina faces."
The crisis has seized the economy of the South American giant in the last 24 hours.
Macri unexpectedly requested on Wednesday an acceleration of the IMF's $ 50 million financing agreed in June.
The government has already arranged a first tranche of $ 15 billion, some of which have been used to try to shore up the peso.
A statement by the president aimed at calming the markets seemed to have done the opposite after his request – in effect, to obtain early access to the remaining $ 35 billion of the loan – caused the peso to fall by almost 7.0 percent. closing.
Despite the explicit support of the International Monetary Fund for its policies, the peso opened a 4.0 percent lower on Thursday, which provoked the intervention of the Central Bank.
The bank promised to keep interest rates unchanged by 60 percent until at least December.
IMF chief Christine Lagarde said on Wednesday she had accepted Macri's request to speed up loan disbursement in an attempt to shore up Argentina's battered economy.
In exchange for IMF support, the government has pledged to reduce its budget deficit to 2.7 percent this year, from 3.9 percent in 2017 and to 1.3 percent of GDP next year.
But analysts said the government needs to provide more details on how it plans to achieve aggressive fiscal objectives of the IMF, if the markets are going to ease.
In addition, the government faces a major obstacle in November, when a debt repayment in foreign currency of 7,000 million dollars is owed.
"This will be a key point," said Edward Glossop, a Latin American specialist at Capital Economics.
"Regardless of what happens from here, the country's weak balance sheets mean that Argentine markets will remain extremely vulnerable to changes in investors' appetite for risk," Glossop added.
Speaking at the opening of the business chamber of the Council of the Americas in Buenos Aires, Peña attributed the volatility of the market to the recent history of Argentina.
"We are the country that has most times violated its international contracts in the world, which has lied and cheated the rest of the time, and has shown again and again, until now, that it is not willing to seek fiscal balance. their own resources, "he said.
He insisted that the path taken by Macri, since he took office in December 2015 after Cristina Kirchner's left-wing free-spending government, is one of "fiscal balance, development and growth".
& # 39; There are no magic solutions & # 39;
The current exchange turbulence was attributable to "structural vulnerabilities" following a massive drought that affected agricultural production, the main generator of foreign exchange, and a "change in the financial and commercial context in the world, mainly due to tensions between the United States. and China, "Pena said.
"There are no magic solutions, you have to go for the truth."
Macri had tried to calm the turbulence in a statement before the markets opened on Wednesday, assuring the Argentines that aid is on the way.
"During the last week, we have had new expressions of lack of confidence in the markets, especially about our ability to obtain financing for 2019," acknowledged Macri.
He said the IMF would provide "all the funds necessary to guarantee compliance with the financial program next year."