Value Of The Usd V.s. The Peso

[TrevorCito]

Does anybody have an idea as to why the peso value is INCREASING relative to the dollar in the face of 40% inflation?

I would have though that the USD would be a natural hedge against inflation but it seems that the reverse is happening.

The only explanation I have is that there is somehow a huge inflow of USD buying pesos but from where and whom?

Theories..... anybody?

 

[garryl]

i fell the same. makes no sense.

 

[Traveler999]

I'm may be pulling this out of my ass, but it seems obvious to me that the current administration is manipulating the currency to keep the dollar low. In my quite limited understanding of economics, why not? It seems to benefit making this country more stable. Does anyone have a better/rational explanation?

 

[EJLarson]

I'm may be pulling this out of my ass, but it seems obvious to me that the current administration is manipulating the currency to keep the dollar low. In my quite limited understanding of economics, why not? It seems to benefit making this country more stable. Does anyone have a better/rational explanation?

Not me, but how? Wouldn't the government have to sell millions/billions of dollars in public transactions? And they don't have any dollars anyway?

 

[garryl]

I'm may be pulling this out of my ass, but it seems obvious to me that the current administration is manipulating the currency to keep the dollar low. In my quite limited understanding of economics, why not? It seems to benefit making this country more stable. Does anyone have a better/rational explanation?

i suspect that. the current admin is much more savvy than CFK's. I just do not know how.

 

[nikad]

It is the season when most of the soy is being sold and there is a big influx of usd coming in. A strong peso is not good for the current administration, they are not keeping it low, moreover the central bank has been buying to keep it at the current levels.

 

[chris]

It is the season when most of the soy is being sold and there is a big influx of usd coming in. A strong peso is not good for the current administration, they are not keeping it low, moreover the central bank has been buying to keep it at the current levels.

I have heard this too but whatever the reason the exchange rate is absurd. The most ridiculous thing is that domestic agricultural products are so absurdly high. The problem is that as soon as the dollar rises against the peso inflation increases due to speculation. It seems a vicious circle. Just how long people can tolerate the high prices is the question. A lot of people tell me that they are suffering.

 

[nikad]

I have heard this too but whatever the reason the exchange rate is absurd. The most ridiculous thing is that domestic agricultural products are so absurdly high. The problem is that as soon as the dollar rises against the peso inflation increases due to speculation. It seems a vicious circle. Just how long people can tolerate the high prices is the question. A lot of people tell me that they are suffering.

To discourage people who can still save or invest in foreign currencies they raised interest rates to a point where it i more profitable to keep a CD deposit in pesos @ 35% interest rate +/-

 

[lamarque]

Well what nikad say is about right, right now the government is having the opposite problem as the kischner government, to many dollars are getting in the country. So the government is actually buying dollars so the dollar stop sinking in relation to the pesos, there are 4 main reasons i would say of why this is happening, one is what nikad already mentioned, the soy is being sold, another reason is the big influx of dollars coming in, mostly because of the interest rate the Argentinean bonds in peso are paying (the so called lebac furor), secondly and probably more important there are 60 billon dollars or more in the blanqueo, that could or could not decide to get into the country, that make a lot of people to speculate that the dollar will go even lower or it will remain on this value and at the same time that push more people to buy pesos for buying lebacs or other bonds generating this strong peso effect. Of course this is a huge problem for the government, that why they have been making more and more strict the controls to not allow financial external investor to bring money into the country and at the same time they had been buying more and more dollars to stop the fall of it, the government is in this moment the only player that is making pressure to avoid the dollar to fall below 14, but of course that goes against their goal of not emitting to many pesos so they have as well lower down 3 times the interest rate in the last 2 months, that is helping but not as much as they would like to, as still investors are seen a quiet dollar in the following few months, so they want to make big profit in pesos to then convert to dollar when the pesos start showing symbols of weakness again but this whole circuit make the peso more and more strong is an spiral, eventually there will be investors that will decide to take away that money and you will see the opposite effect, I have saw this phenomenon as well in other economies and in the past in argentina, normally if you are good with the timing I will recommend to buy lebac for 3 months and on the end of the 3 months get the interest, the capital and transform them to dollars. I forgoted to mention the last reason that is that even if the government don't have so much cash dollars, there are to many people willing to buy argentinean bonds in this moment, last emision there was 4 times more offer than what the government demanded that make some kind of pillow that soften any future run to the dollar.

Sorry for my english btw it has been getting worst the more german i learn

 

[chris]

To discourage people who can still save or invest in foreign currencies they raised interest rates to a point where it i more profitable to keep a CD deposit in pesos @ 35% interest rate +/-

Interest rates are that high are a sign of instability. I know a number of people who bought CDs years ago when the rates were equally high. Then came the corralito and they lost nearly everything. It is foolish to think that all is well with Macri when the reality is that the economy is very unstable. Anyone who has lived here and has gone through multiple crises knows that ANYTHING can happen. When I came here during Menem's first term and signed an employment contract in pesos I was concerned about devaluation. "Do you REALLY think the government will do that"? my employer asked. At the time it seemed highly unlikely....Well, look what has happened since then.