The parallel rate reached historic highs and is more than double the official rate
April marked a new phase of high pressures on the Argentine peso, and given the persistent macroeconomic imbalances and political uncertainty, the currency will continue to tumble on the parallel market. Companies should maintain strong relationships with the government to closely monitor the implementation of policies to tame currency volatility, such as new import restrictions, special foreign exchange regimes, or the tightening of capital controls. While polls point to a more market-friendly president in the next term, Multinationals should remain attentive to the candidates’ economic teams and their foreign exchange policies. Import-dependent firms should continue to expect higher costs and lower consumer spending amid the persistent inflationary pressures. However, a depreciation of the official rate should overall favor Argentine exporters, as a weaker peso bolsters competitiveness.
Overview
- In April, the parallel exchange rate or “dolar blue” slumped more than 25% from 388 ARS:USD to 495 ARS:USD, while the official peso experienced a devaluation of only 6% (from 209 ARS:USD to 222 ARS:USD).
- The crawling peg regime, adopted in late 2019, implies a slow and steady currency devaluation plan. Given the growing gap between both FX rates, the government would have to accelerate the crawling peg so the currency depreciates faster.
- Amid devaluation expectations, the country’s dollar reserves are diminishing, which limits the central bank’s ability to defend the peso’s value. The stock of reserves decreased from US$ 39.1 billion on March 30 to US$ 36.4 billion on April 26, the lowest level since September 2022.
- Thus, the central bank is also hiking its policy rate to promote peso savings and tame high inflation. On April 27, the Central Bank of the Argentine Republic (BCRA) increased the rate from 81% to 91%. While a 10-percentage-point hike is a step in the right direction, the policy rate is still below annual inflation (104%) and, therefore, negative in real terms.
Our View
Although the Argentine peso will face increasing volatility, we do not anticipate a one-off devaluation before the election. Our forecast indicates a faster devaluation in the coming weeks, surpassing the pace registered in Q1. While the IMF has expressed concern regarding recent local financial market interventions, it is still likely to approve a US$ 3 billion disbursement in June, alleviating some market fears. Amid slower export tax collection due to a severe drought, the IMF will also likely to provide flexibility to Argentina, lowering the reserve accumulation and primary deficit targets. Still, even with additional flexibility, we believe the government will impose stricter capital controls and more import payments restrictions to control dollar demand. Additionally, the government could cut taxes on certain exports, namely agricultural, like the reduction implemented in October 2020, to bolster sales and slightly increase reserves. Our annual average official exchange rate forecast is 280 ARS:USD in 2023, significantly higher than the yearly average in 2022 (131 ARS:USD). Finally, macroeconomic instability will persist in 2024, and the new administration will have to unify the FX regime and reduce exchange restrictions.
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