Fynsa
The year 2021 began, a year still marked by pandemics, quarantines, PCRs and uncertainty. Economic crisis while the world managed to continue functioning. In this context, in January, the Central Bank announced a program to increase its international reserves, with a program that aimed to accumulate US$12 billion over a period of 15 months. This included daily purchases of up to US$40 million, through competitive auctions. The reasons given at the time were focused on the recovery of the US$2.5 billion (approx.) used in the foreign exchange intervention after the social crisis, in addition to the objective of having reserves reach 18% of GDP, which is considered adequate according to the literature.
However, this program did not come to fruition. The financial and economic conditions said otherwise, as local uncertainty caused the peso to depreciate sharply and significantly. Thus, in October, with a little more than half of the purchases made, the accumulation came to an end. Although part of the objectives had been completed, they had not been fully achieved.
Thus, and after another intervention that took up part of what was accumulated that time, the levels of international reserves continued to be low with respect to international recommendations, which, added to the growing increase in public debt, worsened the external solvency indicators. However, in an economy with limited resources (although some do not understand it) and infinite needs, returning to that 18% of reserves had to wait. Until now.
Thus, the Central Bank announced that it will begin a new program to accumulate international reserves, with daily purchases of up to US$25 million per day, starting on August 8, with a duration of 3 years. Thus, it expects to accumulate US$18.5 billion (5.5% of GDP) during the period, to bring reserves to a total of close to US$65 billion (approx. 19% of projected GDP). Today, reserves total US$46.4 billion (approx. 14% of GDP).
Until the end of the year, we should see purchases of up to US$2.6 billion, and then see accumulation of up to US$3.125 billion per half year. Transactions will be executed before the market opens, and will be settled at the close of the day.
From our projections, this program was expected. What is striking is the timing, as it has just started to cut the rate again (although it will only be a few rate cuts), there is some consensus that the peso is oversold and it is not clear that the FED will start a cycle of rate cuts in September (or perhaps later in the year). However, it is not obvious that the effects on the peso will be "negative", since at some point it was necessary to put the bell on the cat and strengthen the Bank's position to face international turbulence. Perhaps it is this strength that the peso needs to stop being seen as the ugly duckling of Chilean assets, or at least it is the first step.
