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Goldman Sachs Revise Their Official USD/ARS Forecasts

ARGENTINA
  • The country continues to face a difficult political crisis and a dire economic outlook. As the new leadership (including the appointment of Sergio Massa to Economy Minister) committed to stop relying on advances from the BCRA for financing the budget deficit, the central bank has been raising interest rates sharply and has steepened the path of the official USD/ARS exchange rate (around 80% annualised over the past month, from ~60% in April-May and just around 20% at the end of 2021).
  • These policy actions and announcements have been associated with a marginal tightening in parallel market spreads, from the wides of late July. While the steps taken on the monetary policy front go in the right direction, Argentina’s macroeconomic fundamentals remain in a distressed state, and the package of measures recently announced by Minister Massa to address the economic and financial emergency appears both underwhelming and insufficient at this stage.
  • As long as policy makers keep preventing the official exchange rate from being a market-clearing price, the slope of the crawling peg remains difficult to predict (as does the timing of any potential sharp devaluation).
  • But given the faster pace of Peso depreciation set in recent weeks, and the meaningfully-worsening domestic inflation trajectory, Goldman Sachs revise their official USD/ARS forecast to 160, 185 and 240 in 3, 6 and 12 months (from 130, 145 and 180 previously), with risks remaining skewed to the upside. GS also revise their longer-term forecasts, to account for the higher expected cumulated inflation differential vs the US in coming years.
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  • The country continues to face a difficult political crisis and a dire economic outlook. As the new leadership (including the appointment of Sergio Massa to Economy Minister) committed to stop relying on advances from the BCRA for financing the budget deficit, the central bank has been raising interest rates sharply and has steepened the path of the official USD/ARS exchange rate (around 80% annualised over the past month, from ~60% in April-May and just around 20% at the end of 2021).
  • These policy actions and announcements have been associated with a marginal tightening in parallel market spreads, from the wides of late July. While the steps taken on the monetary policy front go in the right direction, Argentina’s macroeconomic fundamentals remain in a distressed state, and the package of measures recently announced by Minister Massa to address the economic and financial emergency appears both underwhelming and insufficient at this stage.
  • As long as policy makers keep preventing the official exchange rate from being a market-clearing price, the slope of the crawling peg remains difficult to predict (as does the timing of any potential sharp devaluation).
  • But given the faster pace of Peso depreciation set in recent weeks, and the meaningfully-worsening domestic inflation trajectory, Goldman Sachs revise their official USD/ARS forecast to 160, 185 and 240 in 3, 6 and 12 months (from 130, 145 and 180 previously), with risks remaining skewed to the upside. GS also revise their longer-term forecasts, to account for the higher expected cumulated inflation differential vs the US in coming years.