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Montevideo, October 17th 2017 - 16:59 UTC

Argentine Peso rises against the US dollar as Central Bank shows its muscle

Tuesday, August 1st 2017 - 07:06 UTC
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President Macri let the currency float shortly after taking office in December 2015, removing the controls that ex populist president Cristina Fernandez put in place President Macri let the currency float shortly after taking office in December 2015, removing the controls that ex populist president Cristina Fernandez put in place
Central bank President Federico Sturzenegger told reporters earlier this month that increasing reserves was still a goal but that there was no time line. Central bank President Federico Sturzenegger told reporters earlier this month that increasing reserves was still a goal but that there was no time line.

Argentina's Peso rose against the dollar on Monday for the first time in two weeks, after the central bank intervened in the foreign exchange markets on Friday to halt the currency's rapid decline to historic lows, when it reached 18 Pesos.

 The peso rose 0.86% on Monday to 17.65 per dollar, its sharpest single-day gain since April, after touching a record low of 17.80 per dollar on Friday. The rebound came after the central bank sold US$305 million in reserves on Friday, its first sale in foreign exchange markets since June 2016.

The currency closed July down 5.8%. While government officials and the central bank have played down the risks of currency declines against the dollar, the recent drop's speed was out of line with fundamentals and could increase already high inflation, economists said.

President Mauricio Macri let the currency float shortly after taking office in December 2015, removing the controls that former populist President Cristina Fernandez put in place to prop up the peso and protect dwindling foreign reserves.

The central bank said in April it wanted to boost reserves, but it has been hampered by stubbornly high inflation and the sharp devaluation. Central bank President Federico Sturzenegger told reporters earlier this month that increasing reserves was still a goal but that there was no time line.

The peso had been stronger than expected earlier in the year, and remains below the expectation in the national budget for an average exchange rate of 17.92 per dollar for the year. However government officials have said privately that the 18 Pesos is the top mark and will intervene when necessary.

But with legislative elections approaching in October, in which Fernandez is likely to win a Senate seat, investors have taken profits and hedged portfolios with dollar-denominated assets. A primary vote for Congress, seen as a dry run, is two weeks away.

Categories: Economy, Politics, Argentina.

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  • Marti Llazo

    Just got back from Punta Arenas. The argie peso is going for almost 20 to the dollar at the cambios, over 20 in some. Back in Río Gallegos, it's still about 18 to the dollar on the street.

    Now we know why the AR Central Bank needs all those billions of borrowed dollars: to buy up increasingly worthless pesos and provide the impression of some value, however artificially propped.

    The government here is still saying that the declining value of the peso against the dollar is not going to affect inflation, which is nevertheless looking more and more like it might reach about 24% for this year.

    With the temporary, artificial re-valuation of the peso, the smart money here are selling peso-denominated positions.... and changing ARS for dollars.

    Aug 01st, 2017 - 01:42 pm 0
  • Marti Llazo

    No, reekie, the dollar isn't “going crazy.” You have it backwards, as usual.

    The dollar isn't rising --- the ARS is being devalued ! Just as it has been progressively devalued against the dollar for as long as I can remember.

    When Kretina took office the ARS was selling for about 3.1 ARS to the USD. When Kirchner left office the value of the ARS was about 15 to the dollar (true value, not artificially constrained fake government-assigned value). The ARS is still woefully overvalued but the continuing devaluation is at pretty much the same pace we've seen in past years.

    Of one thing we can be fairly certain: any perception of increased influence by Kirchnerismo is going to cause the ARS value to plummet, no matter what level of support the Central Bank throws at it.

    Aug 03rd, 2017 - 12:29 am 0
  • Marti Llazo

    Reekie, your utter lack of comprehension is both argentine and fascinating.

    Perhaps if I speak more slowly you'll have a better chance.

    Reekie: “ ....the dollar an undesirable guest at the party...”

    Al contrario, the dollar is a most welcome artifact in this country. As it has been historically. Why? Because the argie currency is historically of dubious and usually overrated value. People use dollars here because we all know that AR pesos have only two real trends: either slow devaluation, or quick devaluation. (Here, you can have 18 pesos or one dollar and you can collect either in 12 months..... guess which gets the nod?).

    Elections, you say? In a country where criminals habitually get elected to national office to avoid prosecution and prison? No wonder everyone laughs at this country. It is the portrait of kkorruption.

    Still think recent devaluation is something new and surprising? We have a surprise for you.

    You talk about “citizen purchasing power” ? Between the time CFK took office, and left office, the purchasing power of the peso was only about 10 percent of its earlier value. Between 2003 and 2015 the average price for a kilo of asado beef went from less than 6 pesos to about 87 pesos. And you wonder why nobody wants to keep pesos for more than 24 hours? Why dollars are preferred?

    Here is something to think about, from a local newspaper note. At the end of the 19th century, when British influence in Argentina was at its zenith, Argentina had the fifth highest per capita income in the world. When Peron took office it had dropped to 11th place. By the time Kretina left office it had dropped to 47th place. That is a trend that is hard to turn around. And it's unlikely to improve until Argentina learns to actually work, to be competitive in its production, to produce goods and services of a respectable level of quality and reliability for prices that people are willing to pay on an open market.

    Aug 03rd, 2017 - 09:11 pm 0
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