March 29, 2019 / 8:28 PM / 2 months ago

Ides of March: Argentina peso posts worst month in six

BUENOS AIRES, March 29 (Reuters) - Argentina will not miss March, a painful month for Latin America’s No. 3 economy during which interest rates have spiked to almost 70 percent and the peso devalued close to 10 percent against the dollar.

The peso edged up on Friday, but was down 9.62 percent in March, the worst showing since September, when a currency crisis pushed President Mauricio Macri to strike a $56.3 billion deal with the International Monetary Fund (IMF) to help the country pay off its spiraling dollar debt.

Interest rates, set by daily auctions of short-term “Leliq” notes, have also jumped again, hitting 68.155 percent on Friday, the last trading day of the month. That was up from 50 percent at the end of February and a low of 44 percent in the middle of that month.

The renewed market volatility, after a calmer start to the year, has sparked renewed jitters in the country about what lies ahead for the recession-hit nation, which is setting itself for presidential elections toward the end of the year.

“The outlook is complex and risky: political and policy uncertainty remains high and financial markets’ sentiment very fragile,” Goldman Sachs Latin America analyst Alberto Ramos said in a note on Friday.

Growth indicators have remained weak. The economy shrank 6.2 percent in the final quarter of 2018, data released this month showed, while economic activity in January was down 5.7 percent from a year ago. The poverty rate climbed to 32 percent.

The country’s leaders have moved to tighten monetary policy to rein in inflation which, despite coming off a month-on-month high in September last year, is running at an annual rate of above 50 percent and has ticked up each month since December.

Spreads in bond yields between local and New York-law issuances have also spiked this month as investors have started to grow anxious about the potential of debt restructuring if President Macri is voted out in October.

Ramos said the country needs to stick by, and even deepen, its IMF-backed economic reforms or risk further crises.

“Weakening, or worse, reversing the current policy mix in 2020 would likely precipitate a macroeconomic crisis and possibly also a costly and complex public debt restructuring,” he wrote.

Reporting by Adam Jourdan and Jorge Otaola; Editing by Richard Chang

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