(Adds Macri quote, markets and macroeconomic context)
By Jorge Otaola
BUENOS AIRES, May 8 (Reuters) - Argentina's peso weakened 6.5 percent to a new all-time low of 23.5 per dollar on Tuesday, pointing to possible continued volatility in the local currency despite government and central bank measures aimed at calming the market.
The peso closed slightly weaker on Monday, though analysts remained optimistic the government and central bank had curbed a run on the currency with a massive interest rate hike and lower fiscal deficit target last week. But the local stock market followed the peso lower on Tuesday, and was down 4.5 percent.
Last week, the peso hit a then all-time low of 23 per greenback, prompting the government to announce additional fiscal belt tightening and the central bank to hike its key interest rate to 40 percent on Friday.
Other currencies in Latin America also weakened as risk-averse investors dumped emerging market assets.
President Mauricio Macri, elected in late 2015 on an investment-friendly platform following eight years of populist rule under former leader Cristina Fernandez, has cut utility subsidies in an effort to narrow the country's fiscal deficit.
The increase in water and heating bills paid by average Argentines proved unpopular. Despite the unpopularity of his fiscal belt tightening policies, Macri vows to stay a market-friendly course.
"We will never go back to fooling ourselves with magical solutions," said at a public event on Tuesday.
Fernandez, his predecessor, set up currency and trade controls while printing money to finance her free-spending policies. Inflation, a holdover from the Fernandez era, was 25.4 percent in the 12 months through March.
The government and central bank have refused to change the country's 2018 inflation target of 15 percent, a goal dismissed by many private economists as unrealistic.
The central bank board will hold its regularly scheduled twice a month meeting later on Tuesday. (Reporting by Jorge Otaola, writing by Hugh Bronstein; Editing by Bernadette Baum)