The resources of the monetary authority have been weakening in recent weeks amidst the tensions shown by the market
In the midst of a climate of exchange rate tension and the uncertainty generated by the urgent debt negotiation, the central bank revealed on Tuesday a little encouraging data: the Bookings They fell to the lowest level since 2017.
Specifically, the amount of dollars held by the BCRA broke the floor of the US $ 43,000 million that it had been respecting in recent weeks and was located precisely in $ 42,981 million.
Thus, the strength of the monetary authority is at its lowest level in recent years. To find a lower figure, we must go back to January 2017, when reserves ranged from $ 39 billion to $ 40 billion M.
The deterioration of the position of the entity commanded by Miguel Pesce is accelerating as the foreign exchange market becomes nervous and the definition of debt restructuring approaches. In fact, only so far in May, the BCRA lost $ 594 million. And in April the loss was another u $ s547 million.
Why Dollar Reserves Fall
While April should have been a dream month for him central bank what leads Miguel Pesce As the green shoots of the liquidation of agriculture began, it was not exactly like this and the entity began to add a battery of exchange controls.
What was seen is that agriculture liquidated, but the Bookings continued to drop pressure. In fact, during the month of April, agriculture accelerated the settlement of foreign exchange to levels of US $ 1.5 billion, above the previous month, although almost 20% below the same month of 2019.
But, as the economist and consultant recalled Fernando Marull, even with greater liquidation of agriculture, the exchange surplus that is settled in the official market was reduced by higher import payments, less financial loans from abroad and more purchases of savings dollars, encouraged by the exchange gap from 70% which is now approaching 80%.
In consecuense, the Central had to sell an amount of u $ s547 million of its reserves during April. This is the explanation of why the BCRA continued limiting the operations of dollar MEP and Cash With Liquidation.
The BCRA continues to sell dollars despite the mega stocks and that generates tension
Fall and parachute free reserves
“In the midst of the harvest, the BCRA should be buying reserves and it is not succeeding. As expected, the exchange gap, the risk of default and the expectation of a higher stocks lead to supply retracting and demand accelerating , drying the market, “says Marull.
Thus, at the end of April, gross reserves ended at $ 43.5 billion, of which $ 11 billion are reserve requirements in dollars and $ 22 billion are explained by swaps with China and the loan to Bank of Basel, so Net Reserves add up to $ 11 billion, or almost $ 700 million less than a month ago.
So far in May, the coffers of the BCRA have fallen another 200 million dollars and amid a brutal stocks they could continue to decrease in the coming months if the exchange gap accelerates or there is more risk of defualt. Thus, net reserves pulverize just under 1,000 million in almost a month and a half.
Thus, so far this year the reserves that Pesce manages have fallen 1.7 billion dollars and the official strategy is to stop the bleeding as soon as possible. But precisely because the gap between the official and the parallel exchange rate is so high that those who have to liquidate do not want to do so and expect the government to have to generate a devaluation.
It must be remembered that the exchange rate that exporters receive, depending on what they sell, is substantially lower than the unrepresentative official value. Some receive a dollar around 40 pesos for what they sell abroad.
Pesce has already injected 500,000 million pesos to assist the Treasury and that increases the gap
The power the weight machine
In addition to all this there is the monetary issue that makes the parallel dollar rise in an unfailing way. With the new shipment of $ 110,000 in profit transfer, assistance to the treasury reached 39% of the initial monetary base for the year and exceeded 5% of GDP, also including the shipments for transitory advances. The BCRA has already transferred more than 500,000 million to the Government.
To this aid, additional shipments to the treasury will be added in response to the DNU published by the government yesterday to face the pandemic. According to a report from the consultant Delphos Investment, it is relevant to take dimension that in addition to increasing the working capital ratio and its extensions on the product, the currency exchange rate plus total deposits (M2) on gross reserves is also high, reaching $ 130.
“This number shows the relative weight of the monetary base on reserves at a point where currencies are not superfluous, most of the works authorized in the DNU extensions are valued in dollars and given the level of current nominal rates, the government has even less margin to act in this way, with all the weight of the productive revival falling on the effectiveness of fiscal policy and an economic plan that contains an eventual rise in the price level due to the reproduction of the monetary mass “, says the consultant.
AND Personal Portfolio He says that as for the monetary, the pressure to the exchange rate would return from this week, since the new measures and restrictions of the BCRA would be losing effect, and the monetary issue would continue current course to finance an increasing deficit.
On the other hand, they see the BCRA as less likely to behave the same way it did in April, where it was able to absorb much of the excess liquidity. “That said, the alternatives that remain to lower pressure on the exchange rate and inflation are to raise rates, an unlikely scenario as we have been insisting for several weeks, where the government sees a rate hike as a measure of last resort. We believe they will go down the path of assuming higher inflation in the coming months. Although in the last month inflation was much lower (due to a significant recession), the inflationary dynamics would occur later and when activity returns, since the effects of the issue are not immediate, “they affirm.
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