Reserves to the limit: the concern of the government and the market

One of the main criticisms of market participants of the plan presented last week by the new Minister of Economy Sergio Massa was the lack of concrete signals to reverse expectations on the currency market and, above all, the persistent bleeding of reserves by the Central Bank. In the first five rounds of August, the agency had to dispose of $ 700 million to meet import demand.

BCRA’s reserves are falling at a rate that worries both market agents and the government alike. They seem to have been insufficient to slow the pace of foreign exchange sales.

In July alone, US $ 2,000 left the central bank’s coffers as net sales to meet foreign exchange demand. And the cumbersome sales volume from the first few days of this month suggests that August dynamics may be similar. From From the last Friday in July to last Friday, the agency’s gross reserves fell by more than $ 1 billion.

In addition to strong foreign exchange sales, there have been payments to international organizations that justified these reds. The Central Bank cannot sustain this rate of decline in its coffers: According to market calculations, the net reserves of the monetary authority have already broken through the $ 2 trillion mark a long time ago.

According to consultancy Eco Go, the agency’s net reserves were about $ 1.56 billion last Friday. In other consulting firms the numbers are more critical: according to LCG estimates, without taking into account the sales of the last few days, the net reserves of the BCRA closed July at 1.7 billion dollars, down by 2.4 billion. dollars over last month’s balance.

In Delfo, “net reserves would not exceed US $ 1,000 million, which makes the dollar income announced on Wednesday more urgent. “In the advisory they said:” It is imperative that the Central Bank reaches positive foreign exchange balances next week and that the decided negative trend is halted. “

Sebastián Menescaldi, editor of Eco Go, said before a question from this newspaper: “The problem is the speed with which the reserves are falling. This rate of decline is not sustainable and something needs to be done to reverse it. “.

For the economist, the measures announced in recent days are not enough to limit the bleeding. “Taking short-term debt or anticipating liquidations are not solutions to what is happening today, as it implies a change in the level of reserves but not a change in the dynamics of the foreign exchange market,” he stressed.

“In a short time you would be in a situation like the present one, with the difference that you will also have to repay the short-term loan / working capital”, added Menescaldi.

When looking at liquid reserves, the situation is even more urgent. Fernando Marull, of FYMA said: “lCash reserves are nearly $ 5.9 billion “negative”. In other words, the BCRA is taking on debt with part of its assets as collateral, with both gold and dollar bank reserve requirements. It is no coincidence that private depositors have withdrawn $ 1 billion in the last month, up to levels of $ 15 billion. “

The municipality is wary of the government being able to reverse this trend without validating a jump in the exchange rate or a doubling of the market. Marull stressed: “We expect more announcements on the foreign exchange front, because the momentum is unsustainable. If we exclude the devaluation of the official dollar, the next step will be the formal split, but it can no longer be delayed.”