Argentine Peso Plunges to New Low
Fears of Inflation in Troubled South American Economy Worsen
BUENOS AIRES, Argentina, March 25—The Argentine peso tumbled to a fresh
record low on Monday afternoon on panic selling, despite the Central Bank's
attempts to stop the currency's plunge, and stocks rose as investors sought a safe haven from the falling peso, traders said.
The Central Bank in the middle of the afternoon ordered financial institutions
to immediately sell dollars in excess of the 5 percent net worth limit
for dollar holdings
set by the Central Bank.
"There is barely any trade, very little volume, everything is very small,"
one currency trader said. "Exporters are waiting to see what happens and
importers are paying
their commitments despite these prices."
Exporters had up to 180 days to exchange foreign currencies for local
pesos until the Central Bank on Monday reduced that grace period to five
begins a five-day Easter long weekend on Thursday.
Television images showed long lines of consumers outside exchange houses while bankers said the few foreign exchange trades done have been at the retail level.
"We have had a lot of inquiries but few trades," said the manager of
the downtown branch of a major bank. "So far we've just been buying dollars
who need to cancel the dollar debts on their credit cards."
The peso fell to 3.75/4.00 pesos per dollar (buy/sell rate) for large-scale
transactions in the foreign exchange market, compared to Friday's close
marking a 75 percent depreciation against the greenback since January's devaluation.
"The MerVal could reach 500 points this week," Marcelo Paccione, a trader at Consult Capital Sociedad de Bolsa.
The benchmark MerVal share index, up a third so far this year, gained
3.67 percent to 448.19 points at 3.33 p.m. local time (1833 GMT). Overall,
advanced, five declined and seven remained unchanged at the midsession with light turnover of 17.03 million pesos.
"This is happening so fast nobody knows what will happen later on. Companies' balance sheets are going to show a huge loss," another trader said.
The Central Bank, trying to halt the local currency's slide and prevent
possible hyperinflation, reset the peso's rate at 3.00/3.10 from 2.90/3.00
pesos per dollar
earlier on Monday for retail sales, well below the market rate.
"The government is terrified about hyperinflation, and that's why they've taken these measures that are bound to fail," said a Wall Street trader.
Exchange houses and banks that agreed to the government exchange rate
in exchange for being restocked in dollars must commit to over the counter
sales of dollars
to clients of no more than $1,000 each and a maximum $10,000 per company, a Central Bank statement said.
The peso was pegged at par to the dollar for more than a decade until
Argentina's cash-starved government devalued the peso through a dual exchange
and then floated it fully in February. Since then the peso has plummeted as traders seek hard currency US dollars.
Energy company Perez Companc rose 19 centavos to 2.60 pesos, while steelmaker Siderca gained 49 centavos to 6.06 pesos.
(Additional reporting by Charles Froggatt)
© 2002 Reuters