Peso slides as Argentina's central bank chief Luis Caputo resigns

Luis Caputo above resigned for “personal reasons” and will be replaced by Guido Sandleris

Luis Caputo above resigned for “personal reasons” and will be replaced by Guido Sandleris

In June, the International Monetary Fund and President Mauricio Macri's government reached an agreement on a three-year, $50 billion loan to stem a currency crisis that has seen the peso nosedive by 50 percent against the dollar this year.

The resignation of Luis Caputo to the Presidency of the Central Bank of Argentina (BCRA), which has been reflected with surprise by the global media, occurs amid the trip of the Argentine President, Mauricio Macri, to NY to attend the Assembly General of the United Nations and with the mission of restoring the confidence of the worldwide market in the Argentine economy. Not surprisingly, Macri's domestic popularity has suffered, weakening his re-election prospects next year.

The stoppage was led by labor unions protesting one of the world's highest inflation rates and austerity measures ordered by President Mauricio Macri.

Caputo had only been in the job since June and will be replaced by former economic policy secretary Guido Sandleris. What Argentina is now facing are the consequences of the structural vulnerabilities that Macri inherited when he took office, which his government had underestimated, perhaps for too long.

"We will experience a big recession", Sergio Berensztein, president and CEO at Berensztein Consultancy Group in Argentina's capital, Buenos Aires, told Al Jazeera.

As a central objective, Sandleris asserts that the Central Bank must reduce inflation.

Argentina is in the process of negotiating a $50bn (£38.02bn) credit line with the International Monetary Fund. After this, Sandleris settled overseas and completed a master's degree at the London School of Economics and did a PhD in Economics at Columbia University. He threw his support behind Sandleris.

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The extra funds would cover most of Argentina's financing needs through 2019, except for $2.5 billion that would need to be raised in domestic markets next year, according to a recent report from the Treasury Ministry. Macri said on Monday that the revised IMF agreement would lay out a clear direction in monetary policy. Local media have also reported the government is considering introducing a trading band for the peso. Officials have declined to comment.

The peso ARS=RASL initially fell almost 7 percent in response to the news, with trade thin due to the national strike.

The peso slipped 0.13 per cent to close at 37.33 to the dollar on Monday, traders said.

The peso nearly immediately slumped 2.2 percent against the dollar.

The peso's volatility will likely continue until there is greater clarity on policy, said Delphos Investment in its daily report.

"This resignation is due to personal reasons, with the conviction that a new deal with the IMF will re-establish trust in the fiscal, financial, monetary and exchange rate situation", the bank said.

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