Short-term interest rates in Argentina have shot up to record levels.
Government Lecap notes that mature in late November are now paying 87% interest up from 74% just a day ago and 51% a week ago. This huge jump shows how unstable things have become as President Javier Milei uses every tool he has to keep the peso from crashing before the October 26 elections.Here’s what’s happening: the Argentine government is selling U.S. dollars from its reserves every day to keep the peso’s value from falling. That means they’re spending money they don’t really have to make the currency look stronger than it actually is. In just over a week, they’ve sold more than $1.8 billion, and the central bank’s reserves fell by $1.1 billion in September alone.But this is starting to backfire. When traders see the government burning through its savings to keep the peso steady, they lose confidence. Most investors now believe that once the election is over, the peso will be sharply devalued meaning it’ll be worth a lot less compared to the dollar.Milei is trying to delay that as long as he can because a big devaluation right before an election would cause prices to spike and anger voters. The problem is that his options are running out. Liquidity basically, the money flowing through the system is drying up. Lawmakers are also trying to limit his powers, which could make it even harder for him to act.At this point, markets want reality to return. They’re signaling one thing loud and clear, stop defending the peso, let it float, and take the pain now instead of later.Source: StockMarket.News
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