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November 27, 2014
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BCRA marks second largest dollar-spree

A file photograph shows the front entrance of the Central Bank.
Central Bank buys US$390 in one day, but reserves nudge up only slightly due to debt repayments

The Central Bank (BCRA) yesterday bought US$350 million in the exchange market and a further US$40 million in the electronic market, bringing the total purchase to US$390 million — the second-largest purchase by the country’s monetary authority since the end of the peso’s parity against the United States dollar in January 2002.

The largest single-day purchase by the BCRA remains the US$413 million that were acquired in December of 2011.

Yesterday’s acquisition brought up the total purchased by the BCRA in the first 15 days of the month to US$1.57 billion, with the constant depletion of foreign reserves seemingly curbed by the inflow of cash from this season’s harvest, which began mid-March.

In fact, the development came a day after the CIARA and CEC grain export chambers — which account for a third of all exports from the country — posted the highest level of weekly settlement so far this year, with US$825 million traded in the seven days ending April 9.

Significant purchases of this nature by the BCRA will continue parallel to high settlement rates in the farming sector, a Central Bank source told the Herald.

The bulk of the harvest for Argentina’s main crop, soy, takes place between the end of March and July every year, implying relief for the bank’s foreign reserves and the likelihood of a stable exchange rate up to the latter month.

“The agro-export sector is facing the best possible conditions for settlement; soy is at a record price and there is a favourable exchange rate, so high levels of buying are expected,” the source said.

The soy effect had already been felt last week, when the Central Bank snapped up US$270 million on Friday.

In 2012, during the April-July period of seasonal activity, the average rate of grain settlement clocked in at US$590 million compared to the US$350 million average for the first quarter, according to Dujovne & Asociados.

Last year, the former average came in at US$660 million, and the latter at US$340 million, and the consultancy expects projections of a boosted harvest will take the average rate of settlement this harvest to approximately US$700 million.

He also pointed to a marked drop in the price of gold, which sank below a moving average close to $US1,300 an ounce, while oil also fetched 1.9 percent less.

“The reason behind this unusual volume ... is not only that grain export companies settled today, but also because of orders by petrol and mining companies,” a trader told Reuters.

Exporters have seemingly refrained from the practice of soy-hoarding as refuge from inflation this year, encouraged by January’s devaluation and a steady official dollar rate since. Settlement has been upheld despite the end of a formal agreement with the government to introduce US$2 billion to the economy by the end of February.

There has been plenty of rain in the last 12 months, contributing to projections of a record soy harvest. The Buenos Aires Grains exchange estimates this year’s soybean harvest will come in at 54.5 million tons.

The potential downside of record production is lower export prices, although the Chicago market has proven relatively resilient so far, with soy trading yesterday at US$537 per ton.

Reserves

Despite the almost-record buy, the foreign reserve balance was not significantly affected by yesterday’s currency purchase, ending the day at US$21 million higher with US$27.759 billion as energy imports for more than US$100 million and debt repayment of approximately US$140 million counteracted what would otherwise have been an upswing.

The draining effect of the illicit “blue” dollar exchange rate, which closed 10 cents higher at 10.37 pesos yesterday, has also been significantly reduced, as it waned with the partial lifting of the dollar clamp for savings.

Despite the recent turn in fortune for BCRA Governor Juan Carlos Fábrega, whose explicit aim of curbing inflation has been widely acknowledged as effective, reserves have dropped 9.31 percent, or US$2.849 billion so far this year.

On Monday, the bank’s foreign currency holdings had surged US$12 million to US$27.750 billion, while last week, reserves had risen US$531 million to US$27.738 billion.

Herald with DyN, Reuters

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