This month has seen the Argentine peso record a consistent decline against the US dollar, as it has lost almost 12% of its value since January 1st.
Concerns about a potential escalation in the country’s inflation rates have risen in light of the behavior of the exchange rate of the ‘blue’ dollar.
It has been predicted that inflation in Argentina would reach 100% this year, which is not very different from the rates that were registered last year.
There is currently a devaluation scenario taking place in Argentina and there is a possibility that prices in the country could escalate this year.
There has been an almost 12% decline recorded in the value of the Argentine peso against the greenback in the month of January alone.
On January 27th, the value of the peso reached 386 per dollar in its ‘blue’ variation. Since December, there has been a constant rise in the exchange rate, as it had climbed to 356 pesos back then.
This had seen the peso break a record low. While the government has taken steps for maintaining the stability of the peso by injecting dollars into the market.
This was done for satisfying the demand put forward by registered importers and the government had also announced a purchase operation of its external debt of almost $1 billion.
However, it appears to have had the opposite results and now analysts have become worried about the consequences of this reimbursement on the balance of Argentina’s reserves.
This would have a big impact on the central bank’s capabilities. Head of an economic counseling company, Maria Castiglioni Cotter, directed criticism at the government’s measure.
She said that it did not make sense for a country dealing with a budget deficit to take such a step.
Inflation and more
The continuous decline in the Argentine peso’s value has already had an impact on the prices of goods and services that citizens have to pay.
Even though a number of measures have been applied by the government for limiting the prices of a number of products, the inflation rate has continued to rise.
Private firms have calculated that inflation in the month of January alone would stand at 5%, which is significantly high when compared with countries, such as Brazil, where inflation of less than half a point is expected.
Local analysts believe that the country’s debt purchasing operation could end up accentuating the problems that they are already facing.
They said that it could have an impact on the availability of foreign currency in the market for imports, as it could cause the economy to decline further.
They believe that the US dollar would continue to record a decline, as the government attempts to halt the peso’s depreciation by injecting dollars into the economy.
This strategy had also been implemented back in 2018 by president Macri. The devaluation would also worsen with public spending, which the government is expected to increase with elections drawing nearer.