October 1, 2014
Grain exporters agree to sell US$2 billion
Peso strengthens for second day in a row following Central Bank measureAs the peso strengthened two cents yesterday and the blue-chip swap and the illegal dollar dropped, agriculture exporters yesterday promised the government to sell US$2 billion throughout the month for their remaining crops thanks to the “exchange rate stability,” Cabinet Chief Jorge Capitanich said yesterday on his Twitter account.
This comes only one day after the Central Bank reinstated a rule restricting the amount of foreign currency holdings banks can hold in their coffers to a maximum 30 percent of the institution’s financial liability or its liquid equity, whichever is lower. At the same time, a 10-percent limit was set for the futures exchange market.
The exporters’ decision will have a direct impact on the dwindling international reserves of the Central Bank, which dropped yesterday US$49 million and closed at US$27.802 billion. January ended with a preliminary total of US$28.1 billion of international reserves with an average drop of US$ 192.6 million per day, the worst monthly decrease since January 2006 when the federal government paid US$9.4 billion to the International Monetary Fund to cancel its debt.
Government officials had blamed farmers for the drop in the reserves and accused them of hoarding grain, speculating with an ongoing devaluation of the peso in order to obtain more profits. Nevertheless, meetings have been held in the past two weeks where government officials promised to maintain the dollar at an eight-peso rate, sources told the Herald, in order to make them sell their crops.
While economists agree the strengthening tendency of the peso will continue until the bank deadline in April to adapt to the new regulation, the appreciation won’t be significant in order to respect the eight-peso exchange rate promised to grain exporters. But the same won’t apply to the illegal dollar and the blue-chip swap whose rates will drop even more, economists told the Herald.
“Considering that the government lost a lot of reserves in previous months to avoid a deeper devaluation, the Central Bank has to take advantage of the current scenario to gain more reserves,” economist Mariano Kestelboim told the Herald.
“The peso won’t change that much in order to make farmers sell their remaining crops. But the same won’t apply to the illegal markets.”
A deeper drop
The official dollar rose yesterday by two cents and closed at 7.89 pesos in banks and exchange houses, while the illegal dollar dropped 23 cents and closed at 12.40 pesos. At the same time, the blue-chip swap rose 38 cents and closed at 11.62, accumulating this week in an 81-cent drop, and the dollar in the futures market dropped 51 cents and closed at 8.06 pesos.
Also feeling the effect of the Central Bank regulation, the Merval benchmark stock index yesterday dropped 0.71 percent and closed at 5,881 points with 110 million pesos traded. The main drops were registered in Edenor (2.85 percent), Telecom (2.72 percent), Aluar (2.05 percent) and Solvay Indupa (2.55 percent).
“It all points to an extended drop which will continue in all markets until April, the deadline banks have to sell their additional foreign currency holdings,” Ariel Setton, a Plan Fenix economist, told the Herald.
“Some farmers have enough funds to postpone selling all their crops until April when it’s still not certain what exchange rate the dollar will have.”
The Central Bank’s measure forces banks to sell their additional foreign currency holdings, which are estimated at US$3.5 billion. Yesterday banks sold US$540 million, leading to more foreign currency being available on the market. The Central Bank used those funds to intervene in the Electronic Market (MEP) and buy US$415 million, while about US$20 million were bought on the wholesale market.
Economists agree the Central Bank’s regulation has the objective of narrowing the gap between the illegal and the official dollar, while they estimate the drop in the exchange rates could lead to the Central Bank’s reserves growing, as well as more foreign investments coming into the country.
“If they succeed, more foreign investments will come. The current wide gap discourages that from happening,” Kestelboim said.
“A narrow gap will lead to less speculation over imports which are currently over-invoiced or have not even materialized, which has a directly positive effect on the reserves.”