September 13, 2018 / 6:42 PM / 2 months ago

Argentina's peso drops 3.5 percent to new record low close

BUENOS AIRES (Reuters) - Argentina’s peso currency fell 3.51 percent to close at a new record low of 39.9 per U.S. dollar on Thursday, as market confidence ebbs away in Latin America’s no.3 economy despite President Mauricio Macri’s efforts to reassure investors.

FILE PHOTO: A man shows Argentine pesos outside a bank in Buenos Aires' financial district, Argentina August 30, 2018. REUTERS/Marcos Brindicci/File Photo

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

The peso has lost 53 percent of its value against the greenback so far this year, over 7 percent 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 percent in August, bringing the 12-month rate to 34.4 percent.

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 $50 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 percent of gross domestic product.

Last month, the central bank hiked its key interest rate to an unnerving 60 percent 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.

Additional reporting by Miguel Lobianco and Hugh Bronstein; additional reporting by Miguel Lobianco, editing by Richard Chang and Rosalba O'Brien

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