Argentina tightens foreign currency restrictions on banks

Argentina's central bank tightened restrictions on local banks' foreign currency holdings on Wednesday.

Banks' foreign currency holdings can no longer represent more than 20% of either net worth or liquid assets, depending on which of the two measures is lowest, according to a notice from the monetary authority.

In February the government set a cap of 30% on foreign currency holdings in an attempt to shore up the peso, following its devaluation at the beginning of the year.

The measure also enabled to government to buy dollars and dollar-denominated bonds as local banks sought to offload the dollar-denominated holdings, thus providing a temporary boost to the country's dwindling international reserves.

The move could once again relieve pressure on the peso, but its effects are likely to be weaker and more short-lived than last time since banks have less of an adjustment to make to meet the new limit, said investment bank Credit Suisse in a note to clients.

"Any foreign exchange purchases by the central bank should not affect international reserves as those holdings should already be counted in reserve requirements," the investment bank added.