Argentine Peso Falls to Record as Inflation Expectations Rise

  • President Macri raising energy tariffs and reducing subsidies
  • Cuts to utility subsidies expected to push up cost of living

Argentina’s peso closed at a record low as expectations that price rises would accelerate spurred demand for dollars.

The Argentine peso slid 0.9 percent to 13.96 pesos per dollar on Friday after President Mauricio Macri removed most utility subsidies and raised tariffs on wholesale energy prices. Macri is fulfilling a promise to unfreeze utility tariffs, which have been largely stagnant since 2002, to help close the country’s fiscal deficit. The move is expected to fuel faster consumer price increases, which has boost demand in for greenbacks, according to Gustavo Quintana, a currency trader in Buenos Aires at Rabello & Cia.

“Expectations for faster inflation are playing in favor of taking more dollar positions, so it’s likely the peso will devalue further next week,” said Quintana, who expects the peso to trade above 14 pesos per dollar next week.

Macri removed currency controls on Dec. 17 as part of an effort to end Argentina’s exclusion from global capital markets. The peso fell 27 percent on its first day of freedom and has since weakened 4 percent more.

Demand for the U.S. currency is also expected to increase in February as the government raises limits on how many dollars can be exchanged by importers to $4 million a day from $2 million, Quintana said.

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