December 19, 2014
Analysts buy Fábrega’s C. Bank reserves estimate
Analysts agree with Central Bank estimates of a US$28 billion balance
No major changes are expected during the second semester on the Central Bank’s international reserves, which would end 2014 at an average US$28 billion, a figure mentioned this week by head of the Bank Juan Carlos Fábrega and agreed by analysts. The estimation is close to the current balance of US$28.546 billion, a factor that implies the Bank’s objective won’t be to accumulate reserves but rather to manage them.
As May came to an end, the Central Bank closed two straight months with growths on its international reserves. A total US$326 billion (1.15 percent) was added to the reserves last month, while in April a US$1.213 (4.5 percent) growth was registered. Nevertheless, there’s still a negative balance for 2014 with a US$2.053 billion (6.71 percent) drop.
“After January’s steep drop, the Central Bank reached a monetary equilibrium and its international reserves stabilized thanks to the dollars brought in by grain exporters,” Marina Dal Pogetto, partner at Bein consultancy, told the Herald. “The objective will be to manage reserves throughout the year and end at a similar level. We see reserves at US$27 billion in December.”
The growth registered in April and May can be explained by the current harvest season that provides the Central Bank with an average US$170 million per day. So far this year US$10.16 billion have been brought in, five percent more than the same period last year, according to the CIARA and CEC export chambers.
“We agree with Fábrega’s estimations as we also see the reserves end the year at US$28 billion. It’s a reasonable level,” Juan Pablo Ronderos, head of Business Development at Abeceb, told the Herald. “There will be a stable scenario if an equilibrium can be achieved between interest rates and inflation.”
Even though the harvest season was expected to end in July, the current rain that has been seen in many provinces could extend it another month or two, allowing the Central Bank to still have dollars for a longer period. A total US$29 billion are expected to be brought in this year, a figure 25 percent higher than in 2013. Only a third of the harvest has been sold, according to Fábrega.
“The reserves will probably be stable on the next few months as the harvest season is still going on. The current level works well but the problem will be to maintain it without affecting economic growth,” Andrés Asiaín, director of the Centre of Economic and Social Studies of Scalabrini Ortiz (CESO), told the Herald. “The government should look closer to the smuggling done by grain exporters. If controlled, it could lead to more dollars for the Central Bank.
While the harvest brings plenty of dollars to widen the reserves, several factors that used to make them drop were controlled and are no longer a problem for the Central Bank. The outflow of dollars for tourism dropped 32 percent in the first quarter of the year, going from US$2.82 billion in 2013 to US$1.92 billion this year. In 2013 the total outflow was US$8.70 billion and this year it wouldn’t exceed US$5 billion.
Trips to be done in the future but paid in advance, the increment of the surcharge for tourism from 20 to 35 percent, January’s 21 percent devaluation (which makes trips and purchases outside the country more expensive), and the possibility of buying dollars for savings were some of the reasons seen by the Central Bank on its quarterly report.
A drop in the outflow of dollars for the vehicle sector was also registered in the first quarter due to the lower sales. While last year it was one of the sector most responsible of the drop in reserves with an outflow of US$9 billion, so far this year there has been an outflow of US$1 billion. “It’s the lowest figure since the first quarter of 2010,” the Central Bank explained.
On the other hand, a record level of energy imports was registered in the first quarter and it will be one of the major challenges for the reserves on the upcoming months. Energy import payments rose 33 percent in the first three months of the year, going from US$2.20 in 2013 to US$2.93 billion this year. But the high figure could respond to the payments in advance done by the Central Bank in order to have a more stable rest of the year when the harvest season ends, something rumoured on the past few days.
“The strategy of the Central Bank was to make some debt and energy payments in advance so to have a more relaxed second semester with the harvest season gone and a larger demand of energy because of winter’s low temperatures,” Alejandro Robba, pro-government economist and director of Economics at the Moreno National University, told the Herald. “It’s a way of giving markets more certainties about the reserves trend.”