Tuesday, April 16, 2024

ECONOMY | 22-02-2024 11:34

Investors bet Argentina crawling peg to speed up to 6% by April

Investors see Argentina's crawling peg accelerating to six percent monthly by the start of the second quarter, according to peso futures data.

Investors are betting Argentina’s Central Bank will accelerate the gradual depreciation of the peso, known as a crawling peg, by April in an effort to make the currency more competitive in time for the country’s crucial commodity exports. 

Investors see the peg accelerating to six percent monthly by the start of the second quarter, according to peso futures data. That’s up from the two percent-per-month pace set by President Javier Milei when he took office in December and also enacted a 54 percent devaluation. Milei’s currency policy is a crucial pillar of his bid to rein in Argentina’s triple-digit inflation as well as the government’s US$44-billion programme with the International Monetary Fund. 

Monthly inflation rates of over 20 percent in December and January have diminished the competitiveness gained by the peso after the large December devaluation and two percent monthly depreciations. That mismatch between the peg and monthly inflation has fuelled investor speculation that another one-time devaluation would be necessary as the government seeks to balance keeping the currency competitive for exports on the one hand while limiting the pass through to prices on the other.

The new forecast for a six percent crawling peg by April is three times the current rate but is still less than the 10 percent pace investors had expected in December. The peg’s pace will depend on the Central Bank and how fast inflation decelerates, Economy Minister Luis Caputo said Monday in a TV interview.

Investors expect the government will ramp up the crawling peg in time for Argentina’s essential crop harvest season when farmers begin to export billions of dollars in soy, corn and wheat products, the economy’s main source of hard currency. An outdated peg could encourage exporters to hold back on shipping their harvests until the peso hits a weaker and more realistic level.

“They are going to have to accelerate the crawling peg after March because the real exchange rate is appreciating by leaps and bounds,” said Fernando Losada, a managing director at Oppenheimer. “If the exchange rate falls too far behind, we will go back to the old story of soybeans piling up in silo bags.”

by Ignacio Olivera Doll, Bloomberg


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