The peso weakened nearly three percent on Wednesday, setting a new record of 43.90 per US dollar. Concerns about inflation, weak economic growth and growing tension surrounding the upcoming presidential elections have dealt a blow to market confidence.
The peso, which lost half its value against the dollar last year, has been one of the world’s worst-performing currencies this year, losing 14 percent so far in 2019. It fell six percent in the last two weeks alone, and continues to weaken every day.
The dismal performance has raised fears of a repeat of 2018, when investors dumped the currency amid what President Mauricio Macri called a year of economic “storms.”
The devaluation of the peso has been accompanied by a sharp rise in interest rates – up from 44 percent to 67 percent in two months. Argentina now has the highest interest rates in the world.
In response, the Central Bank has signalled a more hawkish stance over the last month, looking to tighten monetary policy in order to tame inflation and protect the peso, which analysts said should limit the recent weakness.
Brendan McKenna, a currency strategist at Wells Fargo in New York, sees the peso reaching 51 per dollar by year-end, but believes that the government is on track to limit the devastation.
“One of the things that’s lost with Argentina right now is they are actually doing the right things as far as trying to stabilize the economy and the currency. It hasn’t necessarily been as effective as the government would have hoped, but still taking the right steps,” McKenna said in a report to Bloomberg.
President Mauricio Macri also downplayed the news this afternoon, saying that "these things can happen" and that the US currency had appreciated worldwide, not only in Argentina.
He insisted that Argentina’s “serious monetary policy” would keep it afloat, moving towards an economy less dependent on borrowed money, with lower taxes and greater transparency in spending.
“You do not correct 70 years in three,” said Macri.