Argentina's central bank bought 630 million of dollars on the local currency market on Tuesday in one of its largest-ever purchases, a move that will bolster the country's precariously low hard currency reserves. Some 500 million of the dollars purchased were proceeds from last week's 1.5 billion auction of bonds by state energy company YPF.
Largely shut out from global credit markets since a massive debt default in 2002, Argentina imposed currency controls three years ago to stem a hemorrhaging of hard currency and the depletion of its reserves. Since then, all entries of dollars into Latin America's third-largest economy have had to pass through the central bank, which closely regulates the currency market, restricting how much importers and savers may buy.
The restrictions have fueled a rampant black market as Argentines look for channels to buy dollars to shield their savings against inflation and hampered imports. Yet the restrictions have proven insufficient to protect Argentina's reserves, which fell to dangerously low levels last year, setting the country on track to a balance of payments crisis.
As a result the government has set about taking unorthodox measures, such as currency swaps with China, in order to shore up reserves and tide this government over until the end of its term. Presidential elections are set for October and Cristina Fernandez cannot run for a third term.
Markets widely expect Argentina's next government to implement a more sustainable solution to its financing problems by resolving its long-standing battle with investors over unpaid bonds in order to be able to re-access international credit markets. At the same time, they see it lifting currency restrictions.
Argentina's central bank reserves on Monday closed at 33.2 billion, the highest level since November 2013, thanks in part to the unorthodox measures but also to the proceeds from Argentina's 1.4 billion bond sale last week.
The central bank's purchase of dollars on Tuesday will further boost reserves which economists say nonetheless remain low in view of large debt payments due this year and the country's high energy bill, although benefitted from the drop in oil and gas prices.
Today the Central Bank purchased a record figure in the exchange market. The international reserves keep going up, central bank chairman Alejandro Vanoli celebrated via twitter. The bank top official also pointed out that deposits in pesos and dollars are up. Credit is growing. We have achieved financial stability. Inflation is going down. We are going for more growth.
The only response to attacks is results. More reserves, a drop in the illegal exchange rate. The futures are going down and the BCRA is winning, Vanoli underlined.