Argentina’s peso could tumble post-election, warns Morgan Stanley

Morgan Stanley expects Argentina’s peso to weaken sharply after the legislative elections, with the scale of depreciation hinging on the outcome of the vote.

In a report to clients, the Wall Street investment bank said both monetary and exchange rate policy would need to be adjusted after the October 26 vote, regardless of the outcome. However, President Javeir MIlei’s government’s room for manoeuvre would differ depending on its performance, suggests the report.

It that “a continuity scenario would allow for a more orderly transition, while an opposition victory could trigger greater volatility and pressure on the exchange rate.”

It also stressed that “the main objective after the elections should be to accumulate foreign reserves, beyond the US$20 billion support package from Washington,” referring to the swap agreement with the US Treasury.

With the election approaching, Morgan Stanley outlined three possible scenarios for the dollar in the final two months of the year, all sharing an upward trend that could intensify depending on the result.

The bank explained that “we simulated three scenarios, in all of which the main opposition secures around 35 percent of the vote, while support for the ruling coalition ranges between less than 30 percent and 40 percent.”

The report also addressed the possibility of dollarisation, emphasising that “dollarising requires structural reforms and broad political backing to ensure the system’s sustainability.”

Morgan Stanley warned that “Argentina would need between US$21 billion and US$86 billion to dollarise, depending on the conversion rate and reserve requirement applied.” 

At present, the Central Bank (BCRA) holds less than US$10 billion in net reserves, including gold.

Scenarios

One: Continuity with broader majorities (La Libertad Avanza taking 35-40 percent): In this case, the government could move towards a coordinated exchange rate float, backed by the United States and renewed market access. Under this scenario, the dollar would stabilise around 1,700 pesos by December, with inflation gradually easing and GDP growth projected at 2.5 percent for 2026.

Two: Tight result (LLA 30-35 percent): A closer contest would mean weaker market confidence, delays in external adjustment and a higher exchange rate, between 1,800 and 2,000 pesos by year-end. “Progress on reforms would be more limited, and fiscal policy would maintain its current path, though with less intensity,” the report concludes.

Three: Heavy defeat (LLA 25–30 percent): If the ruling coalition trails the opposition by 10 points or more, currency pressures would soar and the dollar could exceed 2,000 pesos, leading to a marked decline in activity and investment.

– TIMES/NA