The exchange rate of the Argentine peso reached historic lows Monday in a decline that took its exchange rate to almost 600 pesos per U.S. dollar. Economists state that the uncertainty of the upcoming elections caused key bagholders to hedge their portfolios with foreign currency. However, analysts fear the effect this movement might have on retail prices.
Argentine Peso Bleeds as Investors Take Cover in U.S. Dollars
The Argentine peso plunged to new historic lows Monday, less than a week before the PASO elections, in which parties elect their representatives for the October general ballotage. The Argentine fiat currency reached 597 units per dollar on its free “blue” exchange rate, jumping 22 pesos in just one day.
This accelerated fall is said to be related to the uncertainty in the upcoming elections, with individuals and companies seeking to hedge their savings in foreign currency. Also, economic analysts say the next meeting with the International Monetary Fund (IMF), which could result in a new official devaluation scheme, might play a part in this abnormal behavior.
Mateo Reschini, a research analyst for Inviu, stated:
The market takes note of the relevance of the date of the upcoming elections and decides to be covered against possible exchange rate jumps, hand in hand with statements from economists, the IMF statement, and media rumors.
From July 7 to August 7, the Argentine peso lost 21% of its value against the U.S. dollar.
Inflationary Ride
This movement in the exchange rate is already wreaking havoc in retail stores, which have rushed to change prices and announce new pricing schemes for the next few days. Analysts fear that this could cause an acceleration of the inflation numbers, with some already expecting a 9%+ Consumer Price Index (CPI) for August.
Inflation numbers for July will be offered after the upcoming PASO elections, but consultants have predicted a 7.7% CPI, which would set the annual inflation rate at 114%, one of the highest in the world.
The country has tried to reduce its disbursements to importers lately to control its dollar and yuan-based reserves, having to resort to using Chinese yuan to complete certain payments to the IMF. However, Economy minister and presidential candidate Sergio Massa reported the government reached a new agreement with the IMF, which would give the country an influx of at least $7.5 billion in the coming months.
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