November 23, 2014
Central Bank reserves free fall continues
As ‘blue’ dollar reaches new high of 14.20 pesos, BCRA sees US$89M loss
The peso fell 22 cents to a new record low of 14.20 per dollar on the black market yesterday despite a decision on Monday by the Central Bank to hike interest rates to ease pressure on the currency.
The wider gap on the official dollar saw the Central Bank’s reserves continue their free fall yesterday. They plunged US$89 million to close at US$28.596 billion on the back of losses of US$168 million on Thursday and Friday of last week and another US$96 million on Monday.
That reserves were to fall was confirmed earlier in the day, with sources revealing the Central Bank had sold US$40 million in a bid to contain pressure on the greenback and made repayments to the Inter-American Development Bank. Unlike Monday, the monetary authority also freed up a significant amount of requests for import firms.
Cabinet Chief Jorge Capitanich said reserves’ fluctuation in recent months was down to “the price of gold and different currencies.”
“The decrease in the international price of soy implies a lesser amount of settlement,” he added.
Grain export settlement since the country’s June 30 default up to Friday weighed in at a total of US$1.635 billion, US$413 million less than during the same period of 2013, aggravating concern that the Central Bank will have to use up more of its precious foreign-currency reserves to keep the peso relatively stable.
‘Blue’ drop likely today
With the official exchange rate of 8.42 pesos per greenback unchanged, black market traders didn’t hesitate to test the waters above the 14-peso mark for the first time.
“We’re seeing if we can keep the rate above 14 pesos,” a trader told Ámbito.com, explaining that the upswing was mainly down to speculation, but that “the stock exchange dollar’s hike has also helped.”
A drop is highly likely today, with the illicit rate’s latest upswing probably proving a final speculative outing by traders before pesos are re-absorbed from circulation into credit channels on the news of higher interest rates.
Indeed, the Central Bank drummed up 12 million pesos and US$104 million through its Lebac and Nobac notes yesterday.
The gap between the “blue” and the official greenback closed the day at a whopping 69 percent, a difference that will concern a government keen on preventing the black market rate from slipping away.
Up to yesterday, the so-called “blue” dollar had jumped 33.1 percent from the 10.17 pesos registered on January 3.
Including the sudden devaluation from 6.9 to eight pesos in mid-January, the official greenback has surged 25.7 percent.
The anaemic condition of the black market dollar reflects capitalization by traders on a particular context of uncertainty with regard to the rate at which the official dollar will be depreciated. Both foreign investors and local companies are tempted by the lure of getting more bang for their buck with the “blue” rate.
Nonetheless, the black market rate has been drastically reduced due to the partial lifting of the dollar clamp in January in the shape of the new “savings dollar,” which has largely quenched the demand for a viable mechanism to curb the effect of inflation expendable income.
Up to yesterday, US$1.281 billion had been handed over to citizens since the mechanism was made available. The savings dollar stood at 10.10 pesos yesterday, calculated by slapping on a 20 percent technically refundable surcharge to the official dollar.
But to receive authorization to purchase dollars, residents must have earned above a minimum of 7,200 pesos per month for the last 12 months, with a maximum amount of dollars per individual set at 20 percent of his or her monthly earnings, as well as a limit of US$2,000 per month per person. A marginal bracket of citizens and firms are thus left taking to the black market.
Higher interest rates
The Central Bank backtracked on Monday on its decision to hike interest rates two weeks ago, bringing its Lebac and Nobac notes back up by one percentage point.
The rates for note-issuing with returns in 98 days and 112 days were set at 26.86 and 27.37 percent, respectively, the same levels as on August 5.
The monetary authority’s governor, Juan Carlos Fábrega, had seemingly hoped to absorb pesos from circulation, in turn curbing demand for the “blue” dollar and easing exchange pressure on foreign reserves, which began to plunge last Thursday.
The drop in rates two weeks ago, reportedly favoured by Economy Minister Axel Kicillof to re-ignite stagnating consumption, instantly led the black market “blue” dollar to surge due to higher market liquidity, as savers seemingly withdrew their fixed-rate deposits and turned to the greenback.
Stocks stay sturdy
The “blue” dollar was not the only destination for the market’s pesos, with the MERVAL benchmark stock index rising 1.49 percent. Leading the way were steel-maker Aluar, whose shares soared 4.4 percent, Brazilian oil company Petrobras, which saw a 3.6 percent hike and state-owned energy firm YPF, whose stock was worth 2.2 percent more.
Bond markets also saw improvement, with the BONAR X rising 2.8 percent, the GLOBAL by 2.34 percent, the BODEN 2015 by 2.1 percent and GDP-linked coupons by 1.3 percent.
Herald with DyN, Télam