Argentine peso slides to new low as election uncertainties weigh
The peso fell for a fourth straight day, dropping more than 4 per cent to 42.34 against the greenback. The decline takes the currency’s fall over the past week to over 8 per cent.
The slide comes at a delicate time for President Mauricio Macri, who is desperately trying to pull South America’s second-largest economy out of recession as he gears up for a bruising re-election battle.
Argentine assets have only stabilised somewhat from last year’s painful rout after the IMF agreed in September to boost its bailout package for the country. But the economy is still on fragile footing, and concerns remain over the social and economic impact of the government’s austerity drive as policymakers look to meet the fiscal targets stipulated in the IMF deal.
Traders warned that while the amount of pesos held in short term bank deposits has been growing this year thanks to high interest rates, a fresh crisis of confidence could prompt savers to seek safety in dollars as the deposits mature, heaping further pressure on the local currency.
Another driver for locals the switch to dollars is stubbornly high inflation, which economists say may take longer than expected to come down from the annualised pace of 49.3 per cent recorded in January.
High inflation in turn will limit the central bank’s ability to revive growth by lowering interest rates, which currently sits at nearly 51 per cent.
“We are of the view that the recovery from this recession will be slower than in other ones because of the monetary and fiscal tightening that is being implemented,” said analysts at Barclay last week. “In this context, we expect GDP to contract slightly in Q1 19 (0.5% q/q sa) and positive q/q growth in Q2 19, led by the agricultural sector and a better performance of consumption, due to some real wage recovery.”