Graphic: Central Bank dollar buys are losing momentum

13th February 2020

By The Essential Staff

Graphic: Central Bank dollar buys are losing momentum

Since ordinary Argentines were banned from purchasing dollars at official prices and pushed into black and grey markets, the Central Bank regained some control over foreign exchange trading, where the supply of Argentine pesos was vastly outpacing demand.

</p> <img class=" wp-image-7852 aligncenter" src="" alt="Central Bank net intervention in forex markets since October 27 election" width="673" height="446" srcset=" 1200w, 300w, 1024w, 768w, 600w" sizes="(max-width: 673px) 100vw, 673px" /> <p>The change in regulation after the end of election season on October 27 allowed the Central Bank to stop bleeding its (mostly loaned) foreign currency reserves, which Mauricio Macri&#8217;s administration had been selling as part of its attempts to prop up the peso. In addition, Alberto Fernández&#8217;s promise of higher export duties for farmers meant that exporters anticipated their seasonal grain sales to minimize tax payments as much as possible before the change of government, bringing in new dollars to the market.</p> <p>From then onwards, the Central Bank turned into a steady dollar buyer, with more than USD 4 billion <a href="">brought</a> into its coffers over the last three months and a half. Those purchases were desperately needed by both the outgoing and the incoming administrations if they wanted to avoid a default on international bonds, as neither markets <a href="">nor the IMF</a> were loaning hard currency to Argentina to cover its <a href="">large amount of short-term maturities</a> anymore.</p> <p>But with farmers having finished with most of their selling until the new harvest season in April, and pressure against the peso <a href="">increasing</a> over the last few weeks as Argentina is failing to renew its local, peso-denominated maturities, the supply of fresh dollars is drying up again, and the demand is recovering. The Central Bank has so far responded by moving its peso-to-the-dollar crawling peg slightly up, but overall the official exchange rate is still moving at a lower pace than inflation.</p> <p>And with policymakers evidently keen not to allow a new sudden jump in the exchange rate, the only remaining option has so far been a return to the late Macri-era policy of selling reserves instead of buying more from exporters. So far, February is proving to be the first month in which the Central Bank&#8217;s coffers have shrank overall, after three months of declining surplus figures.</p> <p>Argentina has enough foreign reserves to continue servicing its international debt in full until the <a href="">late-March deadline</a> to reach a deal with bondholders. But if those negotiations fail, foreign exchange figures are suggesting that a new international Argentine default will be inevitable.</p> <p>

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The Essential Staff

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