ARGENTINA: Stocks Fall 3.22% As Central Bank Moves To Protect The Peso

(RTTNews) - Merval, the benchmark stock market index in Argentina, fell 3.22% to 28,553.27 points Friday, hit by lower prices of bank sector shares after the central bank increased the interest rate to 40% and adopted a set of measures to keep the peso from depreciating further. In the week, the index lost more than 4%.

Besides raising the benchmark interest rate, the Argentinean central bank also expanded the so-called rate corridor - the range between the lending and borrowing rates applied to the monetary authority short-term loans to financial institutions.

The seven-day rate corridor now has a 47% ceiling and a 33% floor. On Wednesday, those rates were at 31.00 and 29.50%, respectively. The BCRA also changed the one-day rate corridor, which now ranges from 28% to 57%, from 28.25% and 32.25%.

Also, the Argentinean central bank decided that, as from Monday, financial institutions will not be allowed to hold more than 10% of their regulatory capital or its own liquid funds, whichever is lower, in foreign currencies in their daily balances.

The locally traded US dollar reacted negatively to the news, falling 5.21%, to 21.80 pesos, after hitting a record high of 23 pesos last week.

"The monetary authority decided to reduce the global foreign currency position limit of financial institutions from 30% to 10%. That had two effects: the fall of the exchange rate, which closed at 22.20 pesos, and the drift of bank shares", said Eduardo Fernandez, from Rava Bursatil.

Argentinean stocks were also hit by the risk rating agency Fitch decision to keep the sovereign credit note in 'B,' but downgrade the country's credit outlook to stable from positive.

Shares from Banco Macro (-9.92%), Transportadora de Gas del Sur (-6.62%), Banco Francos (-5.83%) and Mirgor (-5.29%) ended lower.