The Argentine peso has been declining regularly towards the US dollar since the start of the month, dropping almost 12% on January 1. The conduct of informal “blue” dollar trades continues to climb, raising worries about potential inflation spikes, which are projected to reach close to 100% this year, comparable to the 2022 rates.
Argentine peso keeps on falling
Currently, the country is in a devaluation environment that could lead to a value surge in the next 12 months. The value of the Argentine peso to the US dollar dropped by almost 12%. It now trades 386 pesos per dollar on January 27 in the “blue” market.
The exchange rates have been rising constantly since December reaching 356 pesos per dollar on December 1, setting the record for the lowest peso at that time. The government has taken measures to maintain its stability, injecting dollars to meet the demand of registered importers in the market and announcing an operation to purchase more than $1 billion of its own foreign debt.
However, this seems to have done the opposite, as now, the nation’s local analysts are involved in assessing the nation’s reserves stability after the disbursement. This could have an effect on the central bank’s capabilities. María Castiglioni Cotter, director of an economic advisory firm, criticized the move, saying it is unnecessary while the nation is facing a budget deficit.
Inflation Crisis Looming
The cost of providing goods and services is being impacted by the peso. Nevertheless, the government has implemented a variety of measures to reduce the price increase of different products. Forecasts by private firms for an inflation rate higher than 5% when compared with countries like Brazil, which is expected to grow less than half a point.
Salvador Di Stefano, another local analyst, believes that the debt purchase operation could intensify the problems currently facing the state. This could have an impact on the supply of foreign currency for imports, causing the economy’s slowdown to be even more severe.
According to him, the dollar will continue to fall while the government tries to inject dollars to stop the depreciation of the peso, a similar approach used by President Macri in 2018. Public spending could also intensify the devaluation since authorities are likely to increase it due to the close proximity of the elections. Private analysts anticipate Argentine inflation to reach 95% in the next 12 months.
Do you have worries about the devaluation of the Argentine peso? What is the impact of inflation rates? Please leave a comment below.
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