Analysts keep eye on reserves as uncertainty pushes blue dollar to 160

Doom and gloom ruled in Argentina’s financial markets this week, with analysts training their watchful eyes on the Central Bank’s reserves and uncertainty pushing the unofficial ‘blue’ dollar to record highs.

On Wednesday the Central Bank snapped a prolonged losing streak to buy dollars and improve its reserves for the first time since mid-September, even if only by the modest sum of US$20 million, prompting renewed speculation over Argentina’s immediate financial future.

The week started with the temporary rebate of farm and mining export duties in a bid to lure a dollar influx with much of the harvest in stock and unsold. At that point gross reserves stood at US$41.172 billion, but liquid reserves were estimated as low as US$5 billion.

Gross reserves have fallen by more than US$11 billion over the last year, accelerating in recent months, despite extremely strict currency controls. Even after the government tightened measures for access to the official exchange rate in mid-September, international reserves had fallen a further US$1.323 billion by the start of this week.

Once again the parallel dollar is proving to be the customary refuge to cover against high inflation and the fear of recurrent devaluation. Although a small market, it is a thermometer of expectations. In midweek the parallel or “blue” dollar stood at a record 155 pesos, 24 pesos up from mid-September, as against an official exchange rate of 82.72 pesos and the "solidarity dollar" (the official exchange rate plus tax and surcharge) at 136.49 pesos.

Only those who have received no kind of state aid during the coronavirus pandemic quarantine are authorised to buy up to 200 of these "solidarity dollars" a month, which excludes approximately 75 percent of the field according to private banks.

On Thursday the blue dollar climbed a further three pesos to 158 with no ceiling in sight to open up a gap of 104 percent over an official exchange rate of 77.12 pesos.

By Friday, it had reached 160 per greenback.

‘Same old uncertainty’

"On one hand there is the same old uncertainty in a context in which the reserves keep on falling, which aggravates everything," said Matías Rajnerman, chief economist at Ecolatina consultants. 

On the other, he said that the effects of the crackdown on the parallel market are now making themselves felt – less supply (with the tighter controls on digital speculation) and greater demand on the part of those without access to the "solidarity dollar" for individual savers.

Santiago Bulat, chief economist at Invecq, likewise pins the trend towards a rising blue dollar on uncertainty and also "the Central Bank reverting to monetising the deficit this month," i.e. making transfers to the Treasury, which could result in a greater excess of pesos pressuring the exchange rate.

Alternative legal exchange rates operating on the basis of the purchase and sale of financial assets also advanced – the MEP (mercado electrónico de pagos) closed Thursday at 139.93 pesos and the CCL (contado con liquidación), at 151.49 for respective increases of 86.5 percent and 100.3 percent since the start of the year.

‘Clearly still lacking’

The uncertainty was compounded by a disappointing week for the government strategy of luring hard currency.

"The dollars are clearly still lacking. Cashing in the harvest has not accelerated in recent days as the government was perhaps hoping after export duties were temporarily lowered and that is reflected in the unofficial exchange rates," said Juan Ignacio Paolicchi, an analyst at Eco Go consultants.

On Tuesday US$181 million entered the market, 17 percent less than the previous Tuesday (US$ 218 million) before the government launched its new strategy. And Wednesday’s meagre Central Bank purchase of US$20 million was not so much due to an influx of dollars into the market as heavily suppressed demand. 

– TIMES/AFP/BLOOMBERG