Reserves continued to be under pressure this week, in which the dynamics of the Central Bank’s loss of foreign currency accelerated through daily sales to supply demand in a scenario of shortage of supply due to lower income from agriculture. The monetary entity accumulated net sales for US$554 million during the week.
Besides, Concern about the impact of the drought is growing. The new cut made on Thursday by the Buenos Aires Grain Exchange (BCBA) in the projections for soybean and corn production raised the alert about the upcoming critical exchange rate dynamics.
This week the government managed to get the IMF to agree to make the reserve target for the first quarter more flexible and reduce the annual accumulation guideline, due to the impact of the drought. According to official sources, the quarterly goal would drop by US$3.5 billion, and the annual goal would be cut by $2 billion.
The concrete numbers on the new reserve target will be known when the IMF board formally approves the fourth revision of the agreement. But, despite the easing, analystsThey augur a scenario of constant exchange rate pressure due to the shortage of dollars, for which reason they foresee more measures.
Dollars: BCRA accelerated sales
The BCRA registered this Friday, March 17, a negative balance of US$139 million for its intervention in the Single Free Exchange Market (MULC). According to market sources, the magnitude of red is linked to the demand from provincial governments who made purchases to meet debt payments.
The monetary entity extends a sales streak for ten consecutive days, and had to sacrifice this week about u$s554 millions. Thus, it reflected a significant acceleration compared to the net selling balance of last week, which had been US$282.5 million.
The BCRA accumulated net sales this week in the exchange market for US$554 million
Market operators highlighted that sales in recent days are linked to increased demand as a result of an energy import payment, and purchases from provinces, including Mendoza and Santa Fe, which must pay off debt maturities.
In this way, the BCRA adds in the month net sales of about u$s878 millionand so far in 2023 the selling balance amounts to around US$1,961 million, and it is the worst start of the year (with stocks) in accumulation of foreign currency by the BCRA”.
The operator Gustavo Quintanafrom Pr Cambios, commented “Without too many expectations of significant changes for next week, the projections anticipate renewed official interventions that will surely increase the currency losses in the second part of the month.”
The analysts of Delphi Investment pointed out that “at this rate the BCRA It is heading to close the month with interventions that could exceed US$1,000 million, surpassing the negative result of February (US$890 million) and January (US$192 million).
Gloomy Outlook for Dollar Inflows
The analysts of PPI warn that the foreign exchange panorama “becomes more and more dramatic” due to the impact that the drought will have on foreign exchange earnings.
And it is that the BCBA reduced its estimate of soybean production by 4 million tons to 25 million, a drop of 44.4% compared to the average production of the last 5 campaigns.
The foreign exchange outlook looks bleak given new estimates of the impact of the drought
In the case of corn, the estimate was cut by 1.5 million tons, so 36 million would be harvested. If this scenario were fulfilled and with current prices, the BCBA it estimates that exports will contribute US$20,811 million less than last year.
In this context, analysts Invest in Stock Market they pointed out that “while the recalibration of the reserve accumulation target has made it much more accessible, it still presents a major challenge for the BCRA to achieve compliance with this because “at the current rate, it is difficult to imagine that the BCRA manages to reverse the selling dynamics in the MULC in the last days of March.”
in tune, in PPI They state that “unlike previous years, the drought (which may still imply further cuts in production) will prevent a significant jump in the liquidation of agriculture from April, guaranteeing a scenario of constant tension.”
Dollars: are more exchange restrictions coming and soybean dollar 3?
Given this scenario, in Delphos they anticipate that “if there were no new announcements (soybean dollar 3, etc.), the beginning of April would again be in deficit due to the low liquidation of the agro-export complex.”
Regarding the easing of the reserve guideline for the January-March period with the IMF, which would be US$3,000 million, the consultancy Ecolatina He stressed that “this implies that the Government must continue making efforts currently to reach the goal of the first quarter, but it must also redouble its efforts from April to continue accumulating above that level”
“Although the flexibility to meet the reserve goal for the first quarter increases the probability of reaching it, it may be insufficient. The stock of net reserves -IMF criteria- has already reached US$1.5 billion, therefore, even contemplating the close to US$1.7 billion that could be added when the next IMF disbursement arrives, the Government would still need to add about US$1.600 million”, Indian.
In the market they are still convinced that there will be a 3 soybean dollar between April and May during the entry of the thick harvest
On the difficulty of accumulating reserves, the consultant How much do you finance? He maintained that “in 2023 the prices of commodities are somewhat lower than in 2022 -but they will remain high in historical terms-, while the drought and net payments to the IMF will play against it.”
Thus, the consultancy headed by former Finance Secretary Daniel Marx estimated that “considering the different impacts on the exchange balance, in 2023, reserves of US$7 billion could be lost if additional measures were not applied to avoid it”.
“What decisions could the Government take to avoid this drop in reserves? It is conceivable that it could try to bring forward the liquidation of exports through the application of transitory sectoral exchange rates, negotiate the use of illiquid reserves (swap with China, for example, and the application of greater restrictions on imports, among othershe speculated.
Of the same diagnosis, the specialistto Salvador Vitelli said “the producers are going to be very resistant to the sale (of dollars) since it is going to be an electoral year with many doubts, so I see it very feasible that there will be a soybean dollar 3″.
The analyst foresees that this differential exchange rate “for April or May when the harvest begins, and some extra volume of dollars can be generated that they will need, because although the reserve goals were made more flexible, they are equally high to meet “.
