(Adds comments from Macri)
By Eliana Raszewski and Walter Bianchi
BUENOS AIRES, May 16 (Reuters) - Argentina’s stock and bond markets rose on Wednesday while the peso ended slightly weaker after the central bank allowed the currency to float freely, choosing to sell no dollars on the spot market despite an earlier intervention offer.
It was the first trading session since May 9 that the bank did not sell reserves in a bid to prop up the peso, which has weakened by 15.44 percent so far this month.
President Mauricio Macri called a news conference to say he considered the recent turbulence in the foreign exchange market to be over and called on his own administration to quicken the pace of its deficit-cutting program.
“We have set ambitious targets for everything,” he said.
Weak economic fundamentals, skittishness about inflation and concern over Argentina’s drought-hit soy harvest have helped put the peso under pressure.
The government earlier this month lowered its fiscal deficit goal in 2018 to 2.7 percent of gross domestic product from 3.2 percent previously, as part of its campaign to calm the markets.
The stock market rose 3.27 percent on Tuesday, having gained 19.74 percent over the last six sessions, and analysts cheered news that investors held on to their short-term Lebac securities at the government’s monthly debt auction on Tuesday. Over the counter Argentine bonds rose an average 1.9 percent on Wednesday
“I believe that the market gave a message to the central bank and the executive during the last weeks, which of course prompted us to reflect and to change some things,” central bank chief Federico Sturzenegger said during a presentation. “The market is saying ‘You need a different real exchange rate.’”
Argentina’s current policy is a “dirty float,” in which the market determines the value of the local currency but the central bank intervenes in the spot market when it deems it to be necessary to calm volatility in the exchange rate.
The peso ended 0.78 percent weaker at 24.29 per U.S. dollar.
During his presentation, the central bank chief said an exchange rate of 25 per dollar would be “out of scale”.
Argentina requested a “high access stand-by arrangement” from the International Monetary Fund last week after the peso depreciated rapidly, prompting the central bank to sell reserves and hike interest rates to 40 percent.
Macri said he will insist on an “intelligent deal” with the multilateral lender that guarantees economic growth.
Late on Tuesday the central bank said it had raised interest rates on its short-term ‘Lebac’ securities to 40 percent from 26.3 percent in its monthly auction.
The monetary authority sold 620.930 billion pesos ($25.77 billion) in Lebacs, compared with the 615.877 billion pesos’ worth of securities that matured.
“The local market is being pushed higher by the good signals that came yesterday,” local consultancy Portfolio Personal said in a note to clients.
The central bank said it sold $791 million in the spot market on Tuesday, when official data showed April consumer prices rose 2.7 percent, bringing 12-month inflation to a dizzying 25.5 percent. But the government and central bank has stood by Argentina’s 2018 inflation target of 15 percent.
“Our focus is on the reduction of the inflation rate,” Sturzenegger said, adding that he believed May’s inflation rate would be “quite a bit” lower than April’s. “Disinflation is still present,” he said.
The central bank has about $53 billion in reserves, a level that Sturzenegger said he is “comfortable” with.
Argentina is waiting to see what fiscal measures might be required by the IMF in exchange for the financing deal being negotiated in Washington. Fiscal belt tightening could be politically difficult for Macri after an outcry over his policy of cutting back utility subsidies.
“The government won the battle, but not the war,” local economist Fausto Spotorno from consultancy Orlando Ferreres y Asociados tweeted. (Additional reporting by Jorge Otaola; Writing by Hugh Bronstein and Dave Sherwood Editing by Marguerita Choy and Alistair Bell)