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Argentina’s currency extended its week-long rally on Tuesday and investors swarmed over peso-denominated debt offered by the central bank at nose-bleed-high interest rates, even as economists voiced concern over the bank’s growing indebtedness.

The central bank began offering short-term notes called “Leliqs” with interest rates of about 70 per cent at the start of the month to encourage Argentine banks to invest in peso- denominated assets rather than seeking the safety of the U.S. dollar. The strong dollar has fueled soaring inflation in Latin America’s third biggest economy.

The currency closed 1.24 per cent stronger at 37.14 pesos to the greenback on Tuesday. The value of the currency has risen 11.2 per cent so far in October. But it is still down about 50 per cent since the start of the year, with private analysts forecasting further peso devaluation ahead.

Economists are concerned over the high rates carried by the notes and see the issuance of the new Leliqs as a risky maneuver that could backfire and saddle the bank with too much debt.

With every fresh sale of Leliqs, the bank’s liabilities grow. But the strategy may prove successful if the expected depreciation of the peso over the year ahead increases the value of the bank’s dollar reserves.

Guido Lorenzo, an economist at local consultancy ACM, said it would be a risk if Leliq indebtedness grows faster than the peso depreciates.

“If this happens the central bank is going to end up with some terribly high debt obligations,” Lorenzo said.

The central bank sold 60.1 billion pesos ($1.6 billion) in Leliqs at an average annual interest rate of 72.6 per cent on Tuesday, down from an average 73.524 per cent in Monday’s auction.

The peso sell-off started in May, when foreign investors grew concerned about Argentina’s ability to pay its debts and dumped what had been a rapidly growing inventory of short-term central bank notes called “Lebacs.”

The Leliqs are offered only to local financial institutions, which are subject to reserve requirements that would block them from rushing out of the short-term notes and causing a fresh run on the peso.

The currency is seen plummeting about 19 per cent to 47 to the dollar over the next 12 months, according to a poll of economists by Reuters last week. The bank says it will keep interest rates above 60 per cent until December.

The International Monetary Fund, citing factors including capital outflows and tighter financial conditions in emerging markets like Turkey, Brazil and Argentina, has cut its global economic growth forecast for this year and next.

Argentina renegotiated its standby financing deal with the IMF last month to include tougher fiscal targets, such as eliminating the country’s primary fiscal deficit next year.

Erasing the shortfall, which is projected at 2.6 per cent of gross domestic product in 2018, will not be easy going into a 2019 general election in which President Mauricio Macri is expected to run for a second term.

“It’s going to be difficult because the two main items contingent on IMF funding to cover the budget shortfall would be to eliminate subsidies and cut infrastructure spending. It’s tough medicine,” said Daniel Kastholm, managing director for Latin American corporate finance at Fitch Ratings.

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