November 22, 2014
Central Bank buys US$280M
YPF bond, agricultural exports allow for largest purchase in a year
The Central Bank bought US$280 million on the foreign exchange market, the highest figure in more than a year. The purchase had a positive effect on foreign-currency reserves, which rose US$200 million and closed at US$27.207 billion, despite a US$60 million payment for energy imports.
The large purchase of dollars by the Central Bank helped keep the official dollar stable at 8.01 pesos and to lower the illegal, or “blue,” dollar, five cents to close at 10.70 pesos. Thanks to the drop, the gap between the two erates declined to 34 percent.
“We should see a strengthening of the illegal dollar soon but now that’s on pause due to the improved economic expectations of the first two months on account of the high sales of grain exporters,” a trader said yesterday.
The monetary authority was able to buy dollars yesterday in large part because “energy company YPF started to bring in the dollars of its last bond” and said grain exports brought in “a much higher” amount of dollars than the average US$90 million which are brought in at this time of the year with the peak of the harvest season.
On Wednesday YPF launched its highly anticipated 10-year global bond and raised US$1 billion at 8.75 percent, with the financial instrument oversubscribed more than five times.
Grain export firms grouped under the CIARA and CEC chambers, which represent a third of the sector, have settled US$4.430 billion this year, US$442 million, or 11.1 percent, more than the US$3.988 billion during the first three months of 2013.
Despite yesterday’s increase, the Central Bank’s international reserves dropped US$539 million in March, accumulating a US$3.592 billion drop (11.74 percent) in the first three months of the year, the monetary authority reported on Monday in its final report for the month. Reserves ended March at US$27.007 billion.
If compared with the US$47.523 billion the Central Bank had in October 31, 2011 when the foreign currency limitations were implemented, the drop has been so far US$20.516 billion (43.2 percent). The drop is even larger and reaches 48.7 percent if compared with the reserves record of US$52.654 billion achieved in January 2011.
Government officials have blamed farmers for the dwindling reserves, accusing them of hoarding grain, speculating with an ongoing devaluation of the peso in order to obtain more profits.
At the same time, energy imports continue to contribute to the drop in reserves. Natural gas production plunged 4.4 percent and oil output declined 1.7 percent last year, while US$11.4 billion were spent on energy imports. The increased budget transfers to the energy sector are likely to continue going up this year as the peso devaluation will increase the costs of imported energy.
Debt rating steady
International credit rating agency Standard & Poor’s maintained yesterday its rating of Argentina’s sovereign debt at “CCC+” as well as its negative outlook on long-term ratings and warned all the ratings could drop even more “if external liquidity worsens.”
“We could lower our rating on Argentina if external liquidity worsens, further raising the risk of macroeconomic instability and interruptions in debt service. Similarly, we could downgrade Argentina if we perceive legal risks to debt servicing have increased or have become more imminent,” the agency said yesterday.
Standard & Poor’s reported that numerous factors such as “falling international reserves, limited access to market funding, high inflation, a de facto dual exchange rate and a decelerating economy” contributed to to worsen the country’s credit profile over the last quarter of 2013 and early 2014.
“The government’s reliance on the Central Bank to finance a significant share of its fiscal deficits in recent years has undermined the effectiveness of monetary policy and contributed to inflation, which has in turn eroded the real exchange rate,” Standard & Poor’s said.
Still, the credit-rating agency agreed recent measures have helped stabilize the exchange rate, even if rising prices continue to be a concern.
“The depreciation of the Argentine peso to 8 per US dollar in January this year from $6.50 helped stabilize the loss of international reserves but will contribute to further inflation,” noted Standard & Poor’s.
The agency estimates inflation this year could be at 35 percent, a factor that could contribute to “further loss of foreign exchange reserves and greater macroeconomic instability.” At the same time, Standard & Poor’s projects GDP will contract one percent this year due to “lower activity in key sectors and restrictions on some imports.”
International credit rating agency Moody’s had reduced in March the rating of Argentina’s sovereign debt, moving the grade down one step from B3 to Caa1 due to the fall in the nation’s international reserves and its “inconsistent” economic policy.
Herald with DyN,Télam