Argentina's Central Bank Launches Reserve Purchase Program

The Central Bank (BCRA) finally launched its announced reserve purchase program today. It did so by acquiring US$21 million through interventions in the official foreign exchange market for its own meager holdings, on a day of low activity, with only US$388 million traded, a figure 30% lower than the previous Friday. This is the first inflow to reserves from this type of operation since the exchange rate band system was launched, as the last operation of this kind was carried out on April 1st, when it took in US$53 million, before selling off US$761 million in the following seven rounds amid the uncertainty created by the end of the crawling-peg scheme that had been in place for over 15 months. This was because today, the currency—especially towards the end of the session—was somewhat more offered, mainly due to a contraction in private demand. This last detail was evident when the wholesale dollar, which had started the day slightly higher and trading around ARS$1478, closed with a slight drop of 0.34% after greater supply began to appear as the day progressed. "After the initial rise, the wholesale dollar stabilized for several hours in the ARS$1474 zone, then, in the final stretch of the session, broke that level and deepened the fall to mark an intraday low of ARS$1468. From there, a rebound was observed that allowed for a close at ARS$1470," highlighted Nicolás Merino, an analyst at ABC Mercado, in his daily report. Meanwhile, the retail dollar closed unchanged at ARS$1495 at Banco Nación, while, according to the BCRA's daily survey, in other financial institutions it averaged ARS$1441.26 for purchase and ARS$1492.46 for sale. In contrast, following the wholesale trend, financial dollars (MEP and CCL) fell 0.3% and 0.1% respectively, averaging ARS$1501 and ARS$1541 each; and even the blue or parallel dollar, whose quotation fell ARS$15 to close at ARS$1515, reaching its lowest level since the trading session before Christmas. This aforementioned downward adjustment in the currency is what enabled the purchase by the entity led by Santiago Bausili, who had excused himself on Friday from intervening on the terms he had announced—acquiring only up to 5% of the volume traded in this first stage until seeing how the demand for pesos reacted—by recalling that he would only do so if the payment balance flows allow it. "Last Friday, in a session marked by upside pressure on the spot, those preconditions clearly did not align," one of them detailed to LA NACION. The amount acquired today, although small, slightly exceeds the average 5% of daily purchases based on the known market volume, but is below the nearly US$50 million it could have accumulated after the first two trading sessions of the year. The official plan to remonetize the economy by accumulating reserves is based on a base scenario that projects an increase in the monetary base from the current 4.2% to 4.8% of GDP by year-end, an issuance that could be covered by purchasing US$10 billion. But it also contemplates that if there is an additional increase in money demand of 1% of GDP, purchases could reach US$17 billion, subject to the availability of payment balance flows, without requiring sustained sterilization efforts. "To reach the first target of US$10 billion that he announced, he would need to buy approximately US$42 million daily," calculated economist Lorenzo Sigaut Gravina, of Equilibra consultancy, before clarifying that he is also authorized to "make direct purchases outside the Unique and Free Exchange Market (MULC)". Thanks to this cash inflow, a new hike in reserve requirements, and the revaluation of some of the assets in its portfolio, the BCRA's gross or total reserves also closed the day up by US$310 million (at US$43.4 billion), according to the preliminary official data. In fact, it is speculated that rather than the BCRA being a buyer, it was the Treasury that was selling to moderate the rise in the official exchange rate," recalled Portfolio Personal Inversiones (PPI) on this matter. Today, as the graph shows, the trend was different, and the BCRA, commented in the market, only intervened whenever the spot offer quotation (red line) fell a few pesos, marking a distance with the seller's price (blue line).