Well, it’s time to dust off the annotated Argentine peso chart, because amid the turmoil in emerging market currencies, the central bank has hiked rates (again).
Earlier this year, Argentina grabbed the limelight and not in a good way, as a crisis of confidence in the peso pushed the country into the arms of the IMF (again).
In the week through May 4, the central bank hiked a Tony Montana-ish 1275bps in an (ultimately futile) attempt to get a handle on things.
Paradoxically, the IMF program ended up being a negative for the currency as it effectively meant less intervention. Subsequently, the country got a welcome boost from the MSCI decision.
Anyway, it goes without saying that the collapse of the Turkish lira has soured sentiment further. On Monday, as the peso careened through 30, BCRA hiked another 500bps, taking the 7-day Leliq rate to 45%.
Here’s an up-to-date annotated chart:
The central bank also decided to wind down its short-term bill program in what’s being billed (get it?) as an attempt to rein in inflation and reduce FX volatility. As Bloomberg’s Davison Santana wrote on Monday afternoon citing traders, the “lack of market reaction” to the central bank’s efforts is “likely tied to the fact that short-term Lebacs have been negotiated at beyond 45% for more than a month [so] the central bank’s move [is being viewed] as a mere catch up with current market conditions.”
Generally speaking, it looks like analysts are willing to give policymakers the benefit of the doubt, even if the market isn’t overly impressed.
“[They] had to do something against contagion”, Nomura’s Siobhan Morden remarked.
Schroders’ Jim Barrineau praised Argentina for “doing all the right things”. He also juxtaposed today’s moves from BCRA with the Turkish central bank which, thanks to the fact that it’s basically being run by Berat Albayrak, is doing all the wrong things.
“Argentina’s policy mix can in no way be compared to Turkey’s refusal to embrace the measures that could swiftly bring its crisis to a close”, Barrineau said.
“Right” or not, it’s by no means clear this is going to matter. Sentiment around EM is souring in a hurry. At this point, central bankers in developing economies are effectively trying to outrun a thunderstorm in a car. That’s a race they’ll probably lose.