By Jorge Otaola
BUENOS AIRES (Reuters) - Argentina's peso was flat on Tuesday at 350 per dollar after the central bank guided a sharp devaluation a day earlier in the wake of a primary election upset and said it would fix the FX rate until the general election in October.
Argentina devalued the currency by nearly 18% on Monday while the benchmark interest rate was hiked sharply to 118% after a shock win by radical libertarian Javier Milei in a primary vote sparked a market sell-off of the peso and bonds.
The central bank also tightened controls on access to the popular MEP parallel currency market, one of many unofficial routes to access dollars which have flourished amid tight capital controls restricting access to the official FX market.
The primary was a huge shake-up in a ballot that acts as a dress rehearsal for the national election in October. Markets had been betting on a strong performance by more moderate candidates. Some investors noted that regardless of the ultimate winner, the balance of power looks likely to shift to the right.
Milei, a rock-singing economist who wants to shutter the central bank and dollarize the economy, has ridden a wave of voter anger at inflation near 116% and rising poverty.
"Milei's personality produces fear and the markets look at that," said economist Orlando Ferreres. "There is a bit of panic given that the official devaluation was a surprise."
Argentina's peso has been weak for years, with only capital controls putting the brakes on its decline against the dollar. The government had long looked to avoid a sharp correction in the official rate, though had let it steadily weaken.
On Tuesday, sovereign bonds dipped by an average of some 2.3% after falling on Monday, though the local S&P Merval stock exchange, often used as a hedge against inflation, was again up. The black market peso, often called the "blue", fell 3.5% to a record low 710 per dollar.
"The market knows that, with these results, anything can happen and with this 'black swan' it has to rearrange itself with an eye on the dollar," said economist Fausto Spotorno.
Milei, who got 30% of the vote in open primary elections on Sunday, will face the Peronist coalition led by Economy Minister Sergio Massa, which received 27%, and the conservative opposition bloc of Patricia Bullrich, which won 28%.