Nov 16 (Reuters) – Argentina’s rising central financial institution debt poses a threat to the nation’s financial stability, rankings company Moody’s mentioned on Wednesday, including it may additional stoke inflation and worsen any alternate fee shock if savers flee from the native peso foreign money.
In that state of affairs, Moody’s warned, authorities may even freeze peso deposits, an excessive measure which might carry again recollections of the notorious “corralito” restrictions in the course of the 2001 disaster that aimed to forestall a run on the banks.
“With the quantity of pesos the central financial institution and authorities have, they could conclude that they haven’t any alternative however to restrict entry,” Moody’s analyst Gabriel Torres mentioned in a webinar.
“Argentina has not been in that scenario for some time, however it has executed so previously,” he added.
In a report Moody’s mentioned central financial institution interest-bearing debt had elevated considerably relative to GDP within the final two years, whereas its ratio to the financial base was now over 200%.
“The ratio to the financial base is corresponding to the one noticed within the late Nineteen Eighties, a interval that included a hyperinflationary episode,” it added.
The entity mentioned that there have been refinancing dangers associated to native foreign money debt, with 64% of it maturing in lower than a 12 months and 70% of it listed to inflation, which is presently working at 88% yearly and anticipated to hit 100% this 12 months.
“As a result of inflation is within the order of 100%, a sudden alternate fee shock may lead authorities to think about freezing peso-denominated financial institution deposit and financial savings accounts to restrict additional pressures on the alternate fee,” the report mentioned.
“Argentinean banks’ publicity to authorities and central financial institution debt – largely denominated in native foreign money – has not too long ago elevated and poses systemic dangers for the monetary sector.”
Later Wednesday, rankings company S&P lowered Argentina’s native foreign money fee to CCC- from CCC+, with a damaging outlook, including that coverage disagreements inside Argentina’s authorities and opposition “are weighing on financing situations in native markets.”
“Macroeconomic instability and a polarized political panorama are exacerbating vulnerabilities for native debt placements, particularly given the magnitude of maturing debt because the 2023 main (PASO) and nationwide elections close to,” it added.
Reporting by Valentine Hilaire; Extra reporting by Carolina Pulice; Modifying by Chizu Nomiyama and Sandra Maler
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