Argentines Flock to Black-Market Dollars as Economic Woes Mount

(Bloomberg) -- Argentines are flocking to buy black-market dollars as real interest rates sink below zero and fears mount of yet another chaotic sovereign debt default.

The peso weakened to a record 118 pesos per dollar in informal exchange houses known as “caves” Thursday, up from 107 the previous day, according to people with direct knowledge of the matter. That’s even higher than the blue-chip swap rate, another parallel rate derived from buying securities locally and selling them abroad.

Argentines are pulling their peso deposits as the central bank lowers rates in an attempt to revive lending to companies hit by the coronavirus lockdown and recession. The bank has aset time deposit rates at 26.6% amid 48% annual inflation. Moreover, price-growth could accelerate further amid concern the authorities will print money to finance social spending.

“It’s the perfect storm,” said Federico Furiase, director at Eco Go consulting firm. “There’s the combination of the expectation of a strong monetary issuance from the central bank, the drop in interest rates in pesos and noise surrounding the debt talks.”

Citizens are wary of the talks to restructure more than $65 billion in overseas sovereign bonds after investors rebuffed Argentina’s proposal and Economy Minister Martin Guzman said the government wouldn’t improve the offer.

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