Argentine stocks and bonds rally after IMF deal; peso falls

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BUENOS AIRES (Reuters) – Argentina’s stocks and bonds rallied on Friday after the country signed a $50 billion standby arrangement with the International Monetary Fund, while the peso fell to a record low after the central bank stopped a weeks-long defense of the currency.

A man works on the floor of the Buenos Aires Stock Exchange, Argentina May 9, 2018. REUTERS/Marcos Brindicci

Argentina announced on May 8 it was turning to the IMF after a sell-off in emerging markets prompted a run on the peso. For the past few weeks, the central bank has offered to sell $5 billion in reserves at 25 pesos per dollar, effectively preventing the currency from falling below that level.

That offer did not appear at the open on Friday, traders said, and the peso ARS=RASL opened 0.46 percent lower at 25.10 per U.S. dollar. It was trading down 2.1 percent at a record-low of 25.64 as of 11:13 a.m. local time (1413 GMT).

At a news conference on Thursday night, central bank Governor Federico Sturzenegger suggested the bank would change tack as a result of the deal, which included pledges from Argentina to speed up fiscal deficit reduction and end central bank financing of the Treasury.

“The way the central bank has been operating in the past few weeks had a lot to do with how to confront the turbulence in the foreign exchange market, which in our understanding has been surpassed with the disbursement and approval of this package,” Sturzenegger said.

“Tomorrow we will return to a normal situation in the functioning of the exchange rate regime.”

Argentina’s country risk – a J.P. Morgan measure of the difference between the country’s bond yields and less risky alternatives – fell 4 points on Friday morning to 477 11EMJ. Its 100-year bond maturing in 2117 AR163761602= was up 0.2 percent at 86.97 cents on the dollar.

The benchmark Merval stock index .MERV opened up more than 3.5 percent, with the financial sector leading gains, traders said.

“This is very good news for Argentina,” Alberto Bernal, chief strategist at XP Investments in Miami, said of the IMF deal. “If this does not work, I don’t know what will.”

Reporting by Luc Cohen and Jorge Otaola; Additional reporting by Rodrigo Campos in New York; Editing by Bill Trott and Nick Zieminski

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