May 2, 2018 / 4:13 PM / 2 years ago

UPDATE 3-Argentina's peso weakens sharply despite intervention, rate hike

(Adds dollars sold by central bank)

BUENOS AIRES, May 2 (Reuters) - Argentina’s peso currency ended 3.11 percent weaker on Wednesday at an all-time low of 21.2 per U.S. dollar, even as the central bank continued selling dollars to try to halt the slide of the local currency, traders said.

The currency’s sustained weakening showed a lack of investor confidence in Latin America’s No. 3 economy, which is blighted by one of the world’s highest inflation rates.

The central bank said it sold $504.5 million in the spot market on Wednesday, adding to the $3.7 billion it sold in the last three days of last week. The action culminated on Friday in a surprise hike of the bank’s key interest rate to 30.25 percent from 27.25. Monday and Tuesday were market holidays.

Argentina’s local stock index rose 77 percent last year and investors even gobbled up a 100-year bond as President Mauricio Macri’s strong performance in mid-term elections spurred hopes for more market friendly reforms. But investors have more recently woken up to the country’s vulnerabilities.

“The forces driving the peso lower are unlikely to abate,” Capital Economics said in a report on Wednesday, pointing to a current account deficit equivalent to 5 percent of gross domestic product as well as high inflation.

Local brokerage Delphos Investment said in a report the recent pace of dollar selling was not sustainable. It also said the implementation of a capital gains tax for foreign investors last month had led to a decrease in foreign capital entering Argentine markets.

Consumer prices in Argentina rose 2.3 percent in March, slightly down from the 2.4 percent increase in February. Twelve-month inflation was 25.4 percent, the same level as February. (Reporting by Walter Bianchi, writing by Hugh Bronstein and Caroline Stauffer; editing by Alistair Bell and Sandra Maler)

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