May 21, 2022 10:18 pm

The BCRA lowered a rate for banks to migrate to the long Leliq or buy more debt from the Government

The Central Bank (BCRA) reduced today from 36.5 to 34% per year the interest rate it pays to banks for the loans it receives from them (passive passes) to 7 days to remove part of the pesos issued in excess, basically to assist the treasury.

The measure widens the yield gap between its different monetary absorption instruments –since last week he pays 40% to 44% for placements in his Liquidity Letters (Leliqs) at 28 or 180 days and 32% for 1-day repos, which will remain- in an attempt to accelerate the migration process that drives the very high debt that began to accumulate during the Fernández administration, a period in which it grew from $1.1 million to $4.92 billion.

In this way, it seeks to improve its capacity to sterilize pesos after having injected a whopping $1,568 billion into the economy in the last quarter alone to finance public spending ($1,167 billion) or pay the interest generated by its debt ($401,730 million in the same period), to try to placate the inevitable inflationary impact that this monetary binge will have, consequence that could be strengthened if the current signs of repudiation of the peso are not diminished.

The BCRA had announced at the beginning of the year a set of decisions to reconfigure its monetary policy instruments by applying a “reorganization of the interest rate scheme and a simplification of the organization of systemic liquidity”. In this context, it was that the reference interest rate was raised from 38 to 40%, after keeping it frozen for 13 months, the guaranteed rate for fixed terms was improved by 2 points and the maximum limit for holding Leliqs enabled for banks was expanded (in addition to create a longer 6-month term) and the progressive elimination of 7-day passes.

for the economist Federico Furiase, from the consulting firm Anker Latin America, there is no doubt that, with the cut at this rate, The BCRA seeks to accelerate the migration process in its remunerated debt in addition to generating a window of opportunity for the Government to improve the capture of financing through the market given the obvious costs that he passed on to him by failing his 2021 financial program.

You have to remember that Last year, the Ministry of Economy had promised to finance itself 60% with monetary issues and 40% with debt issues in the local capital market, but in reality it ended up taking from the BCRA three quarters of the resources with which it financed the enormous fiscal deficit.

“The coefficient to be applied from 01.17.2022 for 7-day repo operations in the Repo Round decreases to 0.8500, placing the rate at 34% annual nominal,” the entity communicated this morning in a circular to the banks.

“The drop in the repo rate hides the need for the Government to boost net financing in the local market and lower direct monetary financing in the framework of negotiations with the IMF”, holds Furiase.

“The BCRA seeks to encourage this process with a rate incentive: if the banks start prorating in the 28-day Leliq tender, they will have to choose -in a context of low credit supply- between a 180-day Leliq at an effective annual rate of 48.9% or a Lecer that yields inflation plus something, starting from a floor inflationary inertia of 50% per year. If 25% of the stock of repos that existed at the end of 2021 ends up going to Treasury Bills, it would be possible to raise funds for 1.2% of GDP in 2021,” he explains.

Of course, the risk is that the net financing from the dismantling of remunerated liabilities “is monetarily expansive once the Treasury uses the pesos to finance the deficit,” he warns, in addition to “continuing to increase the exposure of banks to Treasury risk.”

However, in a context of pressing needs, it seems that the bet is that the BCRA improves its chances of managing a heavy debt that is doomed to continue growing, in order to have the chance to gradually reduce assistance to the treasury and turn off one of the engines. that promoted her so much in the Fernández era.

“With the new rate policy, it is expected that the bill for interest on the BCRA’s remunerated liability will become higher. In fact, if there is a reversal of repos to Leliq at 28 days at this level, the interest bill increases by $225 million (0.5% GDP). Only higher inflation can absorb that excess of pesos thanks to the increase in the nominal demand for pesos. And in a context where, despite the tailwind, US$1.6 billion of net reserves were lost, having that level of liabilities is risky and the 60% reduction in the BCRA’s Net Assets measured in dollars should be a warning sign,” he listed. recently in a report the LCG consultancy to warn about the risks that are run in this process.

GMA Capital recalls that the stock of remunerated liabilities already exceeds 10% of GDP and will continue to grow since it will be necessary to “continue to sterilize the monetization of the fiscal and quasi-fiscal deficit” and explains that the measure comes when “passive repos were gaining ground and the Leliq stock (the “longest” liability) represented 45% of total remunerated liabilities, which is the lowest relative weight since September 2018″.

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