Argentina’s informal foreign exchange trade ground to a halt on Tuesday as traders resisted government pressure to sell dollars at cheaper rates and close a widening gap with the formal market.
Over the past two weeks the Argentine peso has weakened faster in the informal market than in formal trade as dollar-hungry savers seek to buy greenbacks despite tough new government foreign exchange controls.
After several sessions of losses in informal trade the peso firmed 4.1 percent on Monday to 4.77/4.79 per U.S. dollar as traders reported behind-the-scenes arm-twisting by government officials.
That prompted currency houses to halt informal transactions on Tuesday, one trader at a leading firm told Reuters.
«In a meeting of brokers yesterday, it was decided not to operate,» the trader said on condition of anonymity.
Market sources and local media said the government was pressuring foreign exchange houses, which dominate the informal trade, to offer the peso at rates even stronger than Monday’s and closer to the formal interbank peso rate.
Some said the request came from Domestic Commerce Secretary Guillermo Moreno, the government’s controversial anti-inflation crusader.
One trader said government officials had «asked them to price the (informal) peso at 4.40/4.50 per dollar.»
In the informal market, nicknamed the «blue» market, the peso was trading at almost 5.0 per dollar late last week.
On the formal interbank market, where the central bank routinely intervenes to control the level of the peso, it edged 0.23 percent higher to 4.2625/4.2650 per dollar in afternoon deals.
The new controls on buying dollars, widely seen as an effort to staunch capital outflows estimated at $10 billion since August, were introduced days after President Cristina Fernandez won a landslide re-election on October 23.
Betting that the central bank would ease dollar sales and allow a steady depreciation after last month’s election, many savers and investors accelerated dollar purchases.
Fernandez’s administration, criticized by Wall Street for its market intervention, blames speculators for pressuring the peso, and the central bank has shelled out billions to prop up the currency.
Meanwhile, the government also freed up another 500,000 tonnes of old crop corn for export late on Monday, a step seen aimed at increasing inflows of greenbacks.
«The inflows of dollars coming from exports are usually low in the late part of the year … as such, the increase in the export quota should give these inflows a boost in late November/December,» Credit Suisse analyst Carola Sandy wrote in a briefing note.
Source: Reuters