(Reuters) -Argentina’s central bank on Tuesday raised its reserve requirements for banks to a level analysts said could risk slowing the economy, a move analysts say aims to soothe markets as the government of President Javier Milei is rocked by corruption allegations ahead of key legislative elections.
Reserve requirements are a percentage of funds that banks hold in reserve to ensure they can meet liabilities in case of sudden withdrawals.
The 3.5% increase – the third increase in recent weeks – is set to come into force on September 1, affecting a range of existing reserve requirement rates that average around 45%.
Analysts warned the level is fast approaching an unusual level of 50% which could slow hoped-for recovery in economic growth.
The measure will allow banks to integrate the reserve requirements through peso-denominated securities that the treasury will place in a tender set for Wednesday, for an amount of approximately 7.7 trillion pesos ($5.79 billion).
The measure comes amid turmoil in Argentina’s economy following corruption allegations involving people close to Milei, after local media published audio recordings in which the former head of Argentina’s disability agency, Diego Spagnuolo, could be heard discussing bribery within the agency.
Milei has not publicly commented on the allegations, but he has rejected attacks from the opposition in rally events as his libertarian party prepares for legislative elections that will reconfigure both Argentina’s Congress and Senate on October 26.
The reports hit Argentine stocks, with the country’s main stock exchange again sliding on Tuesday although the wholesale peso appreciated against the dollar, after falling around 3% on Monday.
Traders said the reserve requirement increase was intended to calm market nervousness as investors took up hedging positions.
“With country risk on the rise, a pressured exchange market, and rate volatility, local assets are facing an adverse climate,” investment agency Cohen said. “The political situation is becoming more complicated, and uncertainty is increasing ahead of the elections.”
Argentina’s closely-watched country risk index, a reflection of how investors view the country’s debt, rose 829 basis points on Monday, hitting its highest level since mid April.
“This political noise raises the chances that the government does not have a good election in October,” added economist Ricardo Delgado.
($1 = 1,330 Argentine pesos)
(Reporting by Jorge Otaola and Hernan Hessi; Writing by Paolo Laudani)
