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Argentina holds benchmark rate as peso firms

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Argentina holds benchmark rate as peso firms

Banco Central de la República Argentina maintained its benchmark rate at 40%, Reuters reported, as the Argentine peso gained momentum after two sessions of losses.

The peso closed up 1.4% at 25.75 pesos per U.S. dollar, rallying from a record low of 26.20 pesos on June 11. The central bank said it sold some $695 million on the spot market after hinting last week that exchange rate volatility had passed.

The central bank said that although inflation in May is likely to be lower than private-sector estimates, it is expected to pick up in June.

"This scenario demands a decisive response," the central bank reportedly said. "This institution is committed to maintaining a contractive bias in monetary policy until it observes tangible signals that both inflation and inflation expectations are starting to decline."

Argentina announced on May 8 that it was turning to the International Monetary Fund for financial aid, following the fall of peso.

The central bank raised its interest rates to 40%, the world's highest. It also repeatedly offered to sell reserves worth $5 billion at 25 pesos per dollar to prevent the peso from falling below that level.

Argentina withdrew the offer June 8, a day after the announcement of its $50 billion standby arrangement with the IMF.

As of June 12, US$1 was equivalent to 25.84 Argentine pesos.