Argentina peso firms, stocks fall after central bank action

BUENOS AIRES (Reuters) - Argentina’s peso currency snapped its slide on Monday as the central bank said it would hike reserve requirements for banks, a move that also sent bank shares tumbling as the country’s stocks had their worst performance since December 2014.

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In the first measures under new Governor Luis Caputo, the bank said it would raise requirements by 5 percentage points in stages beginning June 21 in a bid to soak up 100 billion ARS (£2.7 billion) from the financial system. Banks are currently required to keep 20 percent of their deposits in reserves.

Caputo, the former finance minister, replaced Federico Sturzenegger last week at the helm of the monetary authority as the peso plunged toward record lows.

The peso rose 2.7 percent to close at 27.70 per U.S. dollar on Monday as the country awaited the first disbursement of a $50 billion credit line from the International Monetary Fund.

The central bank also sold $175 billion in an unusual auction of reserves after market close. It said a similar auction would take place on Tuesday.

Bank stocks tumbled on the reserve requirement announcement, with Grupo Supervielle SA falling 12.8 percent to 72.8 pesos and Banco Macro SA closing down 11.2 percent at 164 pesos.

The benchmark MerVal stock index closed down 8.3 percent, its worst day in nearly four years, also pressured by speculation that index provider MSCI would not upgrade Argentina to its emerging markets category later this week, traders said.

Energy and utilities stocks also fell after Energy Minister Juan Jose Aranguren left his post over the weekend.

Argentina’s country risk, a measure of the spread between its bond yields and bonds issued by other countries, rose 18 points on Monday to 569, a sharper increase than other emerging markets. The government sold $4 billion in bonds on Wednesday at rates of up to 32.92 percent in peso terms.

The central bank said in its statement that it would lower a cap on banks’ foreign currency holdings to 5 percent from 10 percent of total assets.

However, it said banks would be able to get around that limit and hold up to 30 percent of their assets in foreign currency if most of those holdings were dollar-denominated Treasury notes. The monetary authority said that would make it easier for banks to buy those notes in the secondary market.

Reporting by Walter Bianchi and Luc Cohen; Editing by David Gregorio and Marguerita Choy