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Argentina bond restrictions to limit ‘hot money’

It wasn’t so long ago that Argentina was struggling to access international investors, but after a huge surge in demand following the sovereign’s landmark issuance the country’s central bank has moved to limit foreign investors’ access to short term central bank notes in a bid to combat hot money and currency destabilisation.

May 19, 2016 // 12:01AM

Argentina’s central bank auctions notes, known as Lebacs, with maturities ranging between 35 and 252 days every Tuesday. But this week, 35-day, 63-day, 98-day and 119-day tranches could only be purchased by investors with local accounts and traded in local markets, while 147-day, 203-day and 252-day tranches were open to all investors.

According to a statement from the country’s central bank, it managed to place about 85.73bn peso of the 90.24bn peso up for auction at this week’s auction, and trimmed yields on its notes with 35-day and-252 day maturities.

Javier Ezquerra, Head of Fixed Income Trading at Banco Galicia said the move was largely intended to limit hot money and fluctuations in the Argentine peso, which could be a destabilising force in the economy.

“We have seen a huge influx of foreign investors over the past month. There were concerns that giving international investors too much access to Lebacs would destabilise the economy – the central bank doesn’t want to be in a situation where they have a massive capital influx and then, once [investors] made their money, they exit,” he said.

“There needs to be a balance struck between removing limits – like those on requiring local accounts to invest in local securities – and being cautious about how the economy evolves from here. It should be done in a timely way.”

Earlier this week the central bank reduced its policy rate by 75 basis points to 36.75%, with inflation still looming as a dominant concern, reaching highs of up to 6.5% in the City of Buenos Aires. The central bank hopes to trim inflation down to 2% by July, though many analysts have suggested that with the removal of key energy subsidies, price rises will make achieving that target nearly impossible.

Americas Currencies Policy & Government

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