February 1, 2019 / 6:22 PM / in 6 months

Argentina central bank has dollar firepower to battle election uncertainty -sources

BUENOS AIRES, Feb 1 (Reuters) - Argentina’s central bank has sufficient dollar firepower to deal with a spike in demand for the greenback if uncertainty over the country’s upcoming presidential election prompts another run on the peso, two sources at the bank said on Friday.

Investors have returned this year to pesos as the currency has stabilized after losing half its value against the dollar last year. However, there are fears this could reverse rapidly if business-friendly President Mauricio Macri fails to win a second term in October’s general election.

Economic volatility is common during election years in Argentina, which has one of the highest inflation rates in the world at nearly 50 percent last year.

The stakes for the country are high. Macri’s leadership, which has managed to calm markets after a tumultuous 2018, is pinning hopes on an economic revival this year to propel election hopes against the leftwing opposition.

Investors fears that if the country swings back to a Peronist president, this could lead to Macri’s moves to open up the market being reversed and businesses once again looking to shift their money out of the country.

The bank source said Argentina has about $14 billion at the ready to respond to potential dollar demand, including around $10 billion that the finance ministry could sell during the year to pay expenses in pesos, and more than $3 billion the central bank has to operate in futures.

The central bank sources emphasized that the monetary authority did not anticipate coming up short if high dollar demand were to return.

“What we have to look at are the stocks in pesos that could be converted to dollars. When one looks at those stocks, it’s a quite small amount,” said one of the sources.

The higher demand for pesos since the end of 2018 strengthened the currency by almost 1 percent in January. The central bank has been making daily purchases of up to $50 million when the peso slips beyond the limits of a non-intervention band set as part of Argentina’s $56.3 billion deal with the International Monetary Fund.

The central bank has intervened by purchasing about $560 million so far this year. (Reporting by Eliana Raszewski; writing by Cassandra Garrison; Editing by Dan Grebler)

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