Argentina: High Likelihood Of Another Devaluation

In our latest article on Argentina, we wrote that the devaluation of the peso last week was not sufficient to a) bring the currency close to where it should be, or b) reverse the dynamics that are creating selling pressure on the unit.

As such, we expect a gradual weakening of the peso to resume over the short term. Over the medium term, if the slide in foreign exchange reserves is not halted, we would expect to see another devaluation, potentially in the next 12 months.

Finally, it is worth noting that another devaluation could come much more rapidly, although this is not yet our core view. If Argentines lose confidence that the central bank’s measures will work, or if inflation surges much higher on the back of last week's devaluation, we could see panic-buying of dollars in the black market, prompting greater intervention by the central bank, which would mean selling dollars and further depleting its reserves. In such a scenario, another devaluation could follow swiftly.

This blog is tagged to:
Sector: Country Risk, Financial Markets
Geography: Latin America, Argentina
Tags: Argentina, peso, currency crisis, devaluation

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