Argentina’s peso, the world’s weakest currency for the past two years, has nowhere to go but down as the nation struggles to rein in runaway consumer price increases, according to the currency’s most accurate forecaster in 2019’s fourth quarter.
“We see the peso at some point depreciating and catching up with a persistently high inflation regime,” said Gabriel Gersztein, the São Paulo-based head of global emerging-markets strategy at BNP Paribas SA.
The peso has held steady just below 60 per dollar since the government resorted to capital controls in August, in the wake of an unexpected primary victory by President Alberto Fernández that sent the currency into a tailspin.
While Gersztein expects capital controls will stay put, he’s betting that the government would eventually allow the spot peso to weaken to maintain constant the difference with the so-called blue-chip swap rate, which currently values the currency at 80.4 per dollar.
Gersztein says that process could start as early as March or April, and that the peso will reach 100 pesos per dollar by the end of 2020 – a 40 percent decline from the official rate now. It was the world’s worst-performing currency against the dollar in nominal terms in both 2018 and 2019.
“If the market level overshoots, the official rate will have to adjust,” he said. “This FX regime has a substantial cost for the real economy.”
South America’s second-largest economy is poised to contract for a third year in 2020, while the jobless rate remains in double digits and annual inflation hovers above 50 percent.
Gersztein estimates Argentina has just US$14 billion remaining in net liquid reserves that could be used to stay current on debt. Argentina’s gross debt stands north of US$300 billion, according to government data, including loans from the International Monetary Fund and private bondholders.