October 12, 2018 / 2:47 PM / a year ago

UPDATE 3-Argentina to shrink short-term Lebac debt as peso ends week higher

(Recasts to include next week’s Lebac auction, adds central bank statement)

BUENOS AIRES, Oct 12 (Reuters) - Argentina’s central bank said on Friday it would issue new publicly traded short-term notes next week in a bid to scale back some of its debt obligations by the end of the year.

The bank said it would offer on Tuesday between 100 billion and 150 billion in peso-denominated short-term debt, known as Lebac, to offset an estimated 230 billion pesos in notes set to expire on the same day.

The central bank’s said in a statement its current stock of Lebac debt totals around 340 billion pesos ($18 billion). Only around 12 percent of that debt is held by banks. The rest is held by mutual funds, companies and private investors.

Argentina’s central bank is hoping to settle its publicly traded short-term debt obligations by the end of the year, the statement said.

“At the end of this process, the only holders of central bank notes will be local banks. This will improve the effectiveness of Argentina’s monetary policy, promote the development of the financial system and strengthen the economy,” the statement said.

Separately, Argentina’s peso dipped on Friday, despite the central bank’s daily auction of high-interest seven-day notes, known as Leliq, which can only be held by banks.

The central bank sold 103.3 billion pesos ($2.85 billion) in the seven-day notes at an average interest rate of 71.997 percent, traders said.

The Leliq debt auctions are intended to sop up liquidity in the peso spot market that would otherwise be used to buy safe-haven U.S. dollars, despite concerns over the sustainability of the strategy in the long-term.

The peso closed 0.38 percent weaker at 36.79 per dollar, ending the week with a gain of 3.02 percent.

Argentina’s Merval stock index closed 7.73 percent stronger on Friday.

The peso has posted weekly gains after a revised standby financing agreement with the International Monetary Fund announced in September boosted Argentina’s credit line to $57 billion from $50 billion.

Argentina’s central bank has said its main priority is to reduce inflation, expected to surpass 44 percent by year end, according to the latest central bank poll.

Argentina is struggling to stabilize its economy, which has suffered a series of setbacks after a bad drought sapped the grain export sector early in the year. A run on the peso led the country to turn to the IMF to assuage investor concerns over its ability to service its international debts in 2019. (Reporting by Jorge Otaola and Walter Bianchi,Writing by Cassandra Garrison and Scott Squires; Editing by Phil Berlowitz and Cynthia Osterman)

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