Saturday, December 26, 2015

Reserves bounce back after devaluation

Finance Minister Alfonso Prat-Gay is seen speaking to Federico Sturzenegger earlier this month.

Five consecutive days of increases bring US$700M to Central Bank coffers; more likely to come

Central Bank reserves are bouncing back since President Mauricio Macri’s administration devalued the peso, and the prospect of loans and grain sales mean that the trend is likely to continue.

Despite the short working day on Thursday, with financial institutions only open until 1 pm, foreign currency reserves grew by more than US$140 million on the day, as exports outnumber imports so far in the new foreign exchange system inaugurated last week.

It was the fifth consecutive day of growing reserves, although not enough to revert the losses registered by the Central Bank in the month so far.

The monetary authority’s coffers currently hold US$24.86 billion, having gained US$700 million since the clamp on foreign trade was lifted on December 17.

The question now is whether that trend will continue in the near future without the need of a bigger devaluation or if, when imports start fully flowing into the country following this week’s liberalization, reserves stop increasing so quickly.

So far, supply has outweighted demand as the government’s agreement with the biggest agricultural companies to start selling grain immediately after last week’s devaluation ensured that hundreds of million per day came into the country.

The Central Bank has taken advantage of that trend in two ways.

Firstly, by keeping the exchange rate below what Finance Minister Alfonso Prat-Gay hinted as its equilibrium rate — 14.20 pesos per dollar. Since the clamp was lifted, the peso always remained below the 14-pesos-mark. It currently stands at 13.39 pesos per greenback.

The other has been buying part of the dollars that grain exporters sell in order to fill its coffers again.

More dollars to come

With estimates saying that around US$8 billion in grain might have been hoarded by exporters in the build up to the devaluation, supply is expected to stay high for some months.

Even if the first quarter of the year is usually the poorest in terms of exports, the sale of the hoarded grain means that it is likely to be the best first quarter in a decade, according to estimates from the conservative IERAL think tank.

After that, the best quarter of the year kicks in with the harvest of soybean in April.

The government is also expecting a large loan from international banks in the coming days.

Finance Secretary Luis Caputo is optimistic about signing the deal soon, which would boost reserves by at least US$5 billion, a similar amount to what the Central Bank lost earlier this year after the outgoing Cristina Fernández de Kirchner administration made the biggest bond payment in a decade by cancelling the Boden 2015 notes.

That combination of factors would mean that the new administration would have an unusually good inflow of dollars to help ease the transition between the old and the new exchange rate regimes, which analysts expect to be difficult due to soaring prices and reduced demand.

If all goes according to plan, Central Bank Governor Federico Sturzenegger could soon have more than US$30 billion in foreign currency available.

Herald staff