Argentina: Peso falls to new all-time low in early April
April 6, 2019
The Argentine peso depreciated in the last few weeks, despite the Central Bank’s tight monetary policy stance. On 5 April, the currency traded at 43.86 ARS per USD, regaining some strength from a record-low of 43.97 recorded on the same day. The result represented a notable 9.2% weakening over the same day of the previous month. The peso lost over half of its value compared to the same day last year and was 14.1% lower than at the beginning of the year.
The currency’s most recent slide reflects a spike in inflation in the first two months of the year; growing concerns among investors on Argentina’s dire economic state ahead of next October’s elections, as well as on the possibility of potential debt restructuring following the elections; and some contagion from heightened volatility in the Turkish lira. March’s slump follows several months of substantial stability of the peso, as in October the Central Bank (BCRA) moved to a monetary rule which sets a 0% monthly growth for the monetary base.
The currency recorded a slight appreciation in the last days of March and in early April following the Central Bank of Argentina’s (Banco Central de la República Argentina, BCRA) decision to encourage banks to invest more in high-yield LELIQ notes—which should prevent investors from selling pesos—as well as the introduction of a floor on LELIQ rates during April. However, the rebound was short-lived, and gave way to a renewed slump in the peso amid investors’ pessimism.
Looking ahead, the peso is expected to depreciate further due to still-high inflation, policy uncertainty and fragile investors’ confidence, although the scope of its weakening should narrow compared to last year, thanks to the Bank’s tight monetary policy stance.
Argentine Peso Exchange Rate Forecast
Panelists surveyed for this month’s LatinFocus report expect the ARS to end 2019 at 47.71 ARS per USD. They project the Argentine peso will trade at 55.21 ARS per USD at the end of 2020.