Interest rates in Argentina have shot up to 33.25% - and could go higher

Argentina's President Mauricio Macri gestures as he speaks during the World Economic Forum (WEF) annual meeting in Davos, Switzerland January 25, 2018. REUTERS/Denis Balibouse

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Argentina's President Mauricio Macri attends the World Economic Forum (WEF) annual meeting in Davos

  • Argentina has raised interest rates to a new high of 33.25%.
  • The move represents an attempt to arrest the fall of the Argentine peso, which is struggling to maintain value against the US dollar.
  • The new rate, which took effect on Thursday, failed to stop the fall of the currency.

Argentina's central bank has raised interest rates to a new high of 33.25% in an attempt to save the struggling peso.

The rise comes after previous interest rate hikes and a $5 billion central bank intervention failed to stabilize the declining currency.Advertisement

The new rate represents the second rise in six days, after the central bank hiked from 27.25% to 30.25% previously. But it was not enough to stop the fall of the peso, a currency struggling to maintain its value against an increasingly strong US dollar.

"The central bank needs to shock the market and regain their credibility," Federico Kaune, head of emerging market debt at UBS Asset Management, told the Financial Times.

The Argentine currency has lost around a quarter of its value this year and passed the 22 peso per dollar mark on Thursday, making it the worst performing emerging market currency this year. A strengthening dollar and the possibility of rate rises from the US Federal Reserve have caused Argentina and other emerging markets to struggle.

Argentina and other Latin American countries tend to issue debt in US dollars, so any rise in the greenback can heavily impact the economy.

"There is an inbred paranoia that the currency is going to go haywire at any point in time," Walter Stoeppelwerth, head of research at Balanz Capital in Buenos Aires, told the FT.