Argentina: Black market peso continues to weaken, hits new record low
January 17, 2014
The peso continues to weaken despite the array of measures the government has implemented against foreign currency trade since Kirchner's reelection in October 2011. On 17 January, the black-market peso traded at a new record low of 11.93 per USD, which was a substantial 22.5% weaker than the level recorded on the same day of the previous month and a hefty 59.0% weaker on an annual basis. Analysts believe the demand for dollars in the past few weeks was largely driven by tourists, as it is now peak holiday season in Argentina. Travelers are rushing to buy dollars in anticipation of further depreciation in the currency in the weeks to come.
In addition, the gap is widening between the parallel and non-official currencies. On 17 January, the official ARS traded at 6.80 per USD, which was 7.3% weaker than the level recorded on the same day of the previous month and 37.3% weaker in annual terms. Despite the official currency drastically losing value, the spread between the official peso and the black market currency reached a record high of 513 basis points on 17 January.
Strong demand for the greenback is eroding the country's foreign currency reserves. International reserves ended 2013 at USD 30.6 billion. On 15 January, international reserves dropped below the USD 30 billion mark for the first time since November 2006, reaching USD 29.9 billion. Argentina, which has had no access to financial markets since it defaulted in 2001, relies on foreign reserves to pay for imports and to honor its debt obligations.
LatinFocus Consensus Forecast panelists expect the official peso to end 2014 at 8.28 ARS per USD, which would represent a 30.5% drop compared to the 6.34 ARS per USD recorded at the end of 2013. For 2015, panelists expect the currency to weaken further and end the year at 10.28 ARS per USD.
Author: Armando Ciccarelli, Head of Data Solutions