Argentine Black Market Peso Falls to Record on Dollar Flight

Argentina’s black market peso fell to a record low today as demand for dollars rises to protect against inflation and a weaker currency in the aftermath of the second default in 13 years.

The peso closed 1.5 percent weaker at 13.15 pesos per dollar in an illegal currency market in Buenos Aires, according to data compiled by Argentines turn to the underground market to buy foreign currency when they can’t obtain government approval to buy dollars at the official rate of 8.2741. The peso in the official market, which is controlled by the central bank, was little changed.

Argentina defaulted on July 30 after a U.S. court blocked a debt payment for not complying with a ruling to also pay in full a group of holdout creditors from the nation’s economic crisis in 2001. Since the default, Argentina has increased restrictions on imports to save international reserves while lowering interest rates which is driving demand in the black market, said Gustavo Quintana, a currency trader at Buenos Aires brokerage Rabello & Cia SA.

“It’s a combination of a rise in demand with a fall in supply,” Quintana said. “Companies that can’t get dollars to pay their imports are covering themselves by buying dollars in the informal market.”

The blue-chip swap rate, used by investors to obtain foreign currency through financial market transactions with bonds and shares, fell 1.5 percent to 11.37 pesos per dollar, its weakest level since May 28.

The central bank lowered interest rates in yesterday’s weekly peso bond auction by 1 percentage point in a bid to bolster the economy which contracted 0.2 percent in the first quarter.

Consumer prices have risen 38.5 percent in the past 12 months, according to private economic research firm Elypsis. The government, which overhauled its inflation index earlier this year, said prices rose 15 percent through June, and haven’t provided an annual figure.

The benchmark deposit rate known as Badlar is 21.25 percent.

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