The unrelenting run on the Argentine peso continues to deteriorate the private sector’s expectations for the country’s economy.
An average of 46 consultancy firms, financial entities, and foreign analysts expect the yearly inflation rate will be much higher than expected the month before – and the previous ones before that – and will hit 44.8 percent, according to the latest monthly survey conducted by Argentina’s Central Bank (BCRA), known as Relevamiento de Expectativas de Mercado (Survey of Market Expectations).
This figure represents a 4.5 percent increase compared to the previous survey, and can largely be explained by the latest devaluations of the peso, which took place in August, and the volatility present in September. In fact, the total yearly inflation expected by the government in August was of 40.3 percent, July’s 29.5 precent and June’s 24.9 percent.
Moreover, the representatives of the private sector consulted estimate next year’s inflation rate be around 27 percent and around 19 percent in 2020.
As a result of the revised agreement with the IMF announced last Wednesday, the Central Bank, now led by Guido Sandleris, is planning on drastically reducing inflation and preventing the peso from further depreciating by using two economic tools: not expanding the country’s monetary base – i.e stop creating money – until June 2019; and rising the already high benchmark interest rates for banks, called Leliq.
Expectations of economic growth were also reduced, indicating an expectation of an even deeper recession. Now, analysts indicated in average they expect the country’s economy to shrink by 2.5 percent of the GDP, a 0.6 percent increase – or decrease – compared to last month’s survey.
This month, the private sector’s estimations are lower than the last known figures from the government: in early September, and in an apparent mistake, the Treasury and Finance Ministry handed out a document indicating it expected the year’s inflation rate to be of 42 percent and the GDP to shrink by 2.4 percent.
The participants also believe the peso’s depreciating trend will continue. In average, they told the BCRA they expect the currency to end the year at AR $43 per US dollar – AR$ 1 more than in the last survey – and that at the end of 2019 the exchange rate will be of AR $50.4 per US dollar.
As we enter the third day since the BCRA began implementing its so-called “no-intervention zone – meaning it will not auction or buy dollars with reserves while the exchange rate stays between AR $34 and $44 per US dollar – the peso continues to appreciate. At the moment this article is being written, the exchange rate in the Banco Nación – one of the lowest in the markets – is of AR$ 38.2 per US dollar. On Friday, it clocked in at AR$ 42.1.
At the beginning of the year, the government expected the annual inflation rate to be of 17 percent and for the economy to grow by 3.5 percent of the GDP. What a difference 10 months make.