May 22, 2018 / 8:49 PM / 9 months ago

UPDATE 1-Argentine central bank holds key rate unchanged at 40 pct

(Adds background, quote from central bank statement)

BUENOS AIRES, May 22 (Reuters) - Argentina's central bank held its reference rate steady at 40 percent on Tuesday, the monetary policy committee said in a statement, explaining that high rates were needed to contain inflationary pressure caused by the country's weak peso.

The local currency has swooned 15.5 percent so far in May to 24.5 per U.S. dollar. The reference rate "must be kept at high levels to contain the transfer to prices of the depreciation of the peso," the statement said.

The central bank has indicated it would intervene in the foreign currency market if the peso weakens to 25 per greenback, a level it has not hit in days.

The bank said in Tuesday's statement that it was standing by its target of 15 percent inflation for this year, a goal seen by private economists as unrealistic. Twelve-month inflation through April was 25.5 percent.

A rally in the U.S. dollar last month focused the market's attention on Argentina's increasing dollar-denominated debt load and weak fundamentals including high inflation and twin deficits. The country became a scapegoat for investors looking to cut their emerging market exposure.

The peso plunged, prompting the central bank to sell reserves and hike interest rates to 40 percent on May 4. Days later the government requested an "exceptional access standby arrangement" from the International Monetary Fund.

Seeking an IMF deal is politically risky for President Mauricio Macri. Many Argentines blame the IMF for the country's 2001 financial meltdown, punctuated by a sovereign bond default and steep currency devaluation, which tossed millions of middle-class Argentines into poverty.

Reporting by Hugh Bronstein and Walter Bianchi Editing by Susan Thomas

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