About That Argentine Peso: One Bank Says It's Too Risky to Short
"If anything, this is not time to be structurally positioned in ARS assets," BNP Paribas strategists led by Gabriel Gersztein wrote in a report today.
The peso, already the world’s worst-performing currency this year, tumbled anew today, dropping as much as 6.1 percent to a record low of 24.1 against the dollar.
Given the unidirectional trade, unabated for most of the past two weeks, you’d think that the smart move would be to short the peso. Not so, says BNP, even considering carry returns provided by world-beating 40 percent interest rates. The analysts at the French bank points to a host of concerns, including the fact that higher rates mean the government must spend more to finance its fiscal deficit, making it unsustainable.
Argentina spent about $5 billion in six days, or roughly 10 percent of its foreign exchange reserves, in a futile attempt to prop up the currency. It was said to intervene again today. Meantime, the central bank hiked rates three times in rapid succession. Now, President Mauricio Macri’s team is in talks with the International Monetary Fund for a credit line of as much as $30 billion.
Besides the IMF, Argentina is also in talks with the World Bank, Inter-American Development Bank and Development Bank of Latin America for additional lines of credit, Finance Minister Luis Caputo said last night. Such credit lines will bolster economic growth, Caputo said.