(Reuters) - Argentina's rising central bank debt poses a risk to the country's monetary stability, ratings agency Moody's said on Wednesday, adding it could further stoke inflation and aggravate any exchange rate shock if savers flee from the local peso currency.
In that scenario, Moody's warned, authorities could even freeze peso deposits, an extreme measure which would bring back memories of the infamous "corralito" restrictions during the 2001 crisis that aimed to prevent a run on the banks.
"With the amount of pesos the central bank and government have, they may conclude that they have no choice but to limit access," Moody's analyst Gabriel Torres said in a webinar.
"Argentina has not been in that situation for a while, but it has done so in the past," he added.
In a report Moody's said central bank interest-bearing debt had increased significantly relative to GDP in the last two years, while its ratio to the monetary base was now over 200%.
"The ratio to the monetary base is comparable to the one observed in the late 1980s, a period that included a hyperinflationary episode," it added.
The entity said that there were refinancing risks related to local currency debt, with 64% of it maturing in less than a year and 70% of it indexed to inflation, which is currently running at 88% annually and expected to hit 100% this year.
"Because inflation is in the order of 100%, a sudden exchange rate shock could lead authorities to consider freezing peso-denominated bank deposit and savings accounts to limit further pressures on the exchange rate," the report said.
"Argentinean banks' exposure to government and central bank debt – mostly denominated in local currency – has recently increased and poses systemic risks for the financial sector."
Later Wednesday, ratings agency S&P lowered Argentina's local currency rate to CCC- from CCC+, with a negative outlook, adding that policy disagreements within Argentina's government and opposition "are weighing on financing conditions in local markets."
"Macroeconomic instability and a polarized political landscape are exacerbating vulnerabilities for local debt placements, especially given the magnitude of maturing debt as the 2023 primary (PASO) and national elections near," it added.
Argentina: Banks' Debt Risk https://graphics.reuters.com/ARGENTINA-ECONOMY/gdvzqyqzzpw/chart.png
(Reporting by Valentine Hilaire; Additional reporting by Carolina Pulice; Editing by Chizu Nomiyama and Sandra Maler)