26 de julio 2007 - 00:00

Reserves put into action to lower dollar

Argentine Central Bank (BCRA, in its Spanish acronym) does not want a dollar at ARG$3.20. The monetary authority wants it to settle below that price and it will jump into market today to sell all that's necessary to achieve such goal.

Although "the ideal price" of the American currency is a secret resting on few government officials and BCRA upper echelons, it's estimated that dollar parity, when market returns to normal, would range between ARG$3.12 and ARG$3.14.

Measures taken in government are the following:

If dollar opens stable, the first sellers will be official banks (Nation Bank and Buenos Aires Province Bank). Then, if US currency prices do not give in, BCRA will intervene with high amounts of money. "First, we send soldiers and then artillery," a source from the monetary authority satirized.

The other big aid BCRA will receive in its attempt to control dollar price (ARG$3.20 in exchange agencies yesterday) is modification of Argentine Statistics and Census Institute (INDEC, in its Spanish acronym). If bond sale curbs, dollar calms down. Pesos reaped by those selling bonds go to dollars. If this situation is reverted because bonds rise, dollar sellers will come up to buy papers in pesos.

The third factor to lower dollar is the fact that exporters are expected to settle most foreign currencies accumulated during the last five days. They did not sell because they betted on a higher quote. If rising trend stops, exporters will be the first to sell so as to take advantage of these values.

The fourth factor is rate rise. BADLAR has climbed in one week from 8.18 per cent annual to 8.56 per cent. This rate is the average paid by banks for 30-day more-than-ARG$1-million time deposits. It may exceed 9 per cent annual in the following days. If, in NOBAC's auctions (BCRA's securities adjusting by BADLAR), surcharge paid above BADLAR rises, there will be greater demand of these papers, since their yields become more appealing.

BCRA is not planning to modify circular blocking foreign currency inflow to buy peso-denominated bonds in spot transactions with settlement.

The monetary authority has not set an amount to sell today because it wants to see "the herd effect": when dollar starts lowering, boards will be filled with sellers, particularly exporters, and decrease will speed up.

If this happens, BCRA will have done a good deal, since between Tuesday and Wednesday, it was a strong seller of future dollar. These month-end quotes will dip, leaving great profits.

Although Central Bank does not want to set a very quiet dollar similar to a foreign exchange hedge, it has learnt a lesson: this market needs certainty in view of great distrust. US real estate market was not the main responsible. Rather, INDEC. For that reason, country-risk settles at 400 points, when, at the beginning of the year, it hit below 200 points.

INDEC intervention was what caused great distrust in foreign lands. Argentine First Lady and Senator Cristina de Kirchner felt so in Spanish businessmen's statements and transmitted that feeling to Argentina, despite she publicly defended the way of measuring inflation.

Government is confident that, with changes in INDEC and BCRA intervention, market will calm down. This feeling is enhanced by the fact that bond drops during the last days happened with poor trading. In foreign exchange market, volumes were not exorbitant, thus it will be easier to break buyers' arm.

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