Argentina's peso closes at fresh record low

Argentina's peso closes at fresh record low

Argentina's peso currency fell 3.5 per cent to close at a new record low of 39.9 per US dollar, as market confidence ebbs away in Latin America's third largest economy despite President Mauricio Macri's efforts to reassure investors.

Dollar demand had risen on Thursday due to high liquidity sparked by an auction of treasury notes, traders said.

The peso has lost 53 per cent of its value against the greenback so far this year, more than 7 per cent in September alone, as protests increase against a renewed effort by the government to cut spending in a bid to regain market confidence.

Thousands of public school teachers and university professors marched against Macri's fiscal belt tightening plans in capital Buenos Aires on Thursday, saying that the administration was funding the army and police while letting education and welfare programs suffer.

"The government is reducing opportunity, not only for education but for healthcare as well, while steering a big part of the budget toward security. We say this is a step backwards," protester Sergio Stape, a 46-year-old teacher, said.

Grim inflation news on Thursday also weighed on the currency, with official data showing that consumer prices grew 3.9 per cent in August, bringing the 12-month rate to 34.4 per cent.

Educators, like other salaried workers in Argentina, say their pay packages are not keeping up with inflation, resulting in a month-by-month reduction of their purchasing power.

Education Minister Alejandro Finocchiaro told reporters on Thursday that despite the financial constrictions the government would fully fund Argentina's schools.

Investors grew concerned about Argentina's ability to honour its 2019 debt obligations earlier this year, prompting a run on the local currency that obligated the government to negotiate a $US50 billion standby deal with the International Monetary Fund.

Targets included in the IMF agreement are being renegotiated to reflect market concerns that the government was not moving fast enough to cut its primary fiscal deficit.

Macri's administration now vows to erase the shortfall next year. His previous 2019 deficit target was 1.3 per cent of gross domestic product.

Last month, the central bank hiked its key interest rate to an unnerving 60 per cent to try to stabilise the peso and calm inflation. High interest rates are one of the reasons why economists expect the economy to shrink this year.

 

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