Passersby pass in front of the Central Bank of Argentina, in the financial district of Buenos Aires, January 8, 2018. REUTERS/Agustin Marcarian. FILE PHOTO
The Central Bank is on its way to setting a record that is as unexpected as it is forceful: in the worst three months of the year for the exchange market, in years of the stocks being in effect (like the current one), the monetary authority has purchased some USD 7.8 billion since August. The figure is extremely unusual given the usual decrease in the supply of foreign currency after the period of strong agricultural liquidation, between April and June, with a remainder that means that the greatest flow extends until July. And it is, above all, unforeseen after the difficulties (also unforeseen), which were evident in the June-July two-month period of this year to accumulate reserves.
Contrary to expectations and fundamentally driven by the dollars of the money laundering plan, the exchange rate dynamics surprised favorably and provided a fundamental pillar to financial stability, which included reaching new lows for the country’s risk level.
But not everything was thanks to whitewashing. Although it emerged as the main factor that enabled the purchase of foreign currency by the Central Bank, at least three other factors were aligned to enhance it. The Cesur economist, Amílcar Collantedetailed each of the off-the-schedule reasons that allowed the BCRA to perform much better than expected, by far.
Source: Amilcar Collante
Firstly, laundering allowed an increase in credit in dollars, which more than accelerated as deposits in special bank asset regularization accounts (CERAs) grew. With this liquidity, banks placed a greater volume of loans in dollars to the private sector, essentially to pre-finance exports. Between August 14 and October 21, the stock of credit in dollars, Collante specified, grew by USD 1,317 million and the BCRA’s accumulated purchases were USD 1,268 million in that same period.
Credit in dollars to the private sector has an additional variant which is the issuance of Negotiable Obligations in dollars, which in total exceeds USD 5,000 million, a large percentage placed in recent weeks (PAE, Banco Galicia, Pama, for example) . Private financing dollars, both to pay off pre-existing debts and to invest or finance operations in the country, feed the supply of the official market. The volume of placement of ONs is the second highest of the decade after 2017, when Argentine companies together were funded for almost USD 6,000 million.
The president of the Central Bank, Santiago Bausili (Gustavo Gavotti)
Altogether, this is the most lasting effect, since the market would have to “digest” about USD 10,000 million, assuming that a percentage of the total entered (more than USD 12,000 million) leaves the system again.
But the income of foreign currency also had other sources that, for this time of year, were exceptional. This is the case of the liquidation of the agricultural sector which, with a particularly good October, averaged almost USD 120 million per day, also considering September. This is, eventually, the “delayed” settlement of the middle of the year, when the expectation of an improvement in the exchange rate of exporters or a reduction in withholdings was latent. Neither measure occurred and, once convinced that this would not happen, the arrival of dollars from the countryside finally accelerated.
The currencies of the field
The last factor that notably contributed to the Central Bank’s purchases is the most negative of all and is equally unexpected: the low level of economic activity means that the industry does not demand dollars to increase the volume of imports, which remains below what is expected. My dear.
Once again, contrary to what the analysts calculated, the demand for imports despite the change from 4 to 2 quotas did not exceed 125% of accrued imports, which left more room for the monetary entity to obtain the dollars offered.
