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Argentine central bank sets new measures, sells more reserves to stem peso slide

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Argentine central bank sets new measures, sells more reserves to stem peso slide

Banco Central de la República Argentina on June 18 put forward a new series of rules and launched a US$400 million foreign currency auction as the central bank works to halt further depreciation of the peso, which has lost about a third of its value against the U.S. dollar so far this year.

In a statement, the central bank said it would raise bank reserves for demand and time deposits by 5 percentage points, resulting in an absorption of liquidity amounting to 100 billion Argentine pesos. The requirement will be increased by an initial 3 percentage points June 21 and another 2 percentage points July 18.

The monetary authority also further reduced the limit of the banks' net positive global foreign currency position computed in daily balances to 5% of their so-called computable shareholding responsibility, or RPC, from the 10% limit the central bank had implemented in May. However, banks will be allowed to increase their net global foreign currency position above the 5% threshold — up to 30% of their RPC — provided the excess is integrated with the U.S. dollar-denominated Treasury bills known as Letes.

In addition, the central bank added a new mechanism in the buying and selling of foreign currency that will be implemented when "there are clear signs of dysfunction." It implemented that mechanism later in the day, announcing that it would offer up to US$400 million of foreign currency through cash sale auctions June 18 and 19.

The auctions, which have 15-minute windows with minimum bids of US$1 million, will be carried out separately from a foreign currency sale program announced earlier in June.

According to a Reuters report, BCRA sold about US$175 million of its reserves in the June 18 auction at an average price of 27.49 pesos per U.S. dollar.

The peso was up nearly 2% against the U.S. dollar as of 4:04 p.m. ET on June 18, trading at 27.62 to US$1.

The moves come days after the Argentine government appointed Finance Minister Luis Caputo to be the new head of the central bank, replacing Federico Sturzenegger who resigned citing "various factors [that] have deteriorated my credibility as president of the central bank."

As of June 15, US$1 was equivalent to 28.27 Argentine pesos.