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In battle to prop up peso, Argentina again hikes bank reserve requirements


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In battle to prop up peso, Argentina again hikes bank reserve requirements

Banco Central de la República Argentina on July 2 raised banks' deposit reserve requirements in pesos by 3 percentage points as it seeks to fortify liquidity control in the country's money market to minimize the recent exchange rate volatility.

In a statement, the central bank said the new rules cover both demand deposits and time deposits, and will result in an absorption of liquidity amounting to 60.00 billion Argentine pesos. The new requirements add to a three percentage point increase from June 18 and a further two percentage points raise will come into force on July 18.

The new rules are also meant to boost the battle against inflation, which hit 26.3% in May.

"In the BCRA's opinion, firmer control of liquidity in the money market is fundamental to minimize the recent volatility of the exchange market and reinforce the entity's anti-inflationary commitment," the central bank said.

The adds to a string of measures from the central bank, led by new central bank chief Luis Caputo, to prevent a further depreciation of the peso, which has lost more than a third of its value against the U.S. dollar so far this year. These measures have also included foreign currency auctions worth hundreds of millions of U.S. dollars.

On June 15, Caputo, at that time Argentina's finance minister, replaced Federico Sturzenegger as the head of the regulator, in a reshuffle that saw the government combine its finance and treasury ministries.

Sturzenegger resigned a few weeks after pushing the benchmark rate 1,275 basis points higher in three emergency monetary rate hikes. Following the fall of the Argentine peso, the Latin American country reached out to the IMF, leading to a $50.0 billion bailout loan .

As of June 29, US$1 was equivalent to 28.98 Argentine pesos.