(Adds short-term bond sale, peso close)
By Jorge Otaola and Walter Bianchi
BUENOS AIRES, Oct 5 (Reuters) - Argentina’s peso ended the week stronger while interest rates on short-term central bank notes crept higher, sopping up pesos in the foreign exchange market that might otherwise have scrambled toward safe-haven U.S. dollars.
Argentina’s central bank sold 104.831 billion pesos ($2.77 billion) in high-interest, seven-day notes known as ‘Leliq’ at average interest rates of 73.314 percent.
The peso closed 1.32 percent higher on Friday at 37.9 per dollar, ending the week up 8.97 percent, traders said.
While the high Leliq rates have calmed the volatile currency, economists have voiced concerns over the long-term sustainability of the strategy.
Argentina’s central bank has said it would keep interest rates above 60 percent until December in a bid to combat rising inflation, which is expected to surpass 44 percent in 2018, according to the most recent central bank poll.
This week’s gains come after a revised standby financing agreement with the International Monetary Fund announced last week upped the country’s credit line to $57 billion from $50 billion.
Turning to the IMF for support was a politically sensitive move for market-friendly President Mauricio Macri, who is up for re-election next year. Many voters blame the Fund for the country’s 2002 economic crisis, which pushed millions of middle-class Argentines into poverty. With high interest rates choking off credit, the economy is expected to keep shrinking next year.
In the United States, Federal Reserve policymakers have signaled support for gradual interest rate hikes that would likely reroute investment from Argentina and other fragile emerging market economies. The peso has lost around half its value against the dollar in 2018. (Reporting by Walter Bianchi and Jorge Otaola Writing by Scott Squires and Hugh Bronstein Editing by Daniel Flynn and Phil Berlowitz)