2024-03-12 01:30:04
Almost three months after the devaluation of the official exchange rate and in advance of the first debt exchange of the Caputo era, the Central Bank surprised this Monday night with a new change in its monetary policy. The organization informed the market that it is lowering the reference rate of the economy, releases fixed term rates in the banks and also “normalizes” the repo rate.
Specifically, the Central Bank decided to lower the economy’s reference rate by 300 basis points and this will go from 110% annually to 80% annually. As detailed in an official communication, this new rate will take effect from this Tuesday.
At the same time, he took note of an old request from the banks and eliminated the minimum rate for term placements, so that each entity will be able to choose at what level it remunerates the fixed terms. Also from Tuesday, banks will no longer be obligated to offer a monthly return minimum of 9.1% as was the rule until now.
Additionally, the organization established that starting next week “the transfer window” can only be used by financial entities regulated by the BCRA.
With these three measures the organism seeks support the fall in the financial exchange rate: After the collapse in February, the dollars listed on the stock market are already losing about 5% this month and the gap had reached a minimum level of 20%.
But it can also support activity since the lowering of rates and the release of the minimum returns that banks had to pay to people and companies was a requirement of the entities to also reduce credit rates.
The Central noted in its communication: “In a context of absence of official intervention, the import exchange rate gap has fallen sharply, both from its pre-December 10, 2023 peak of around 200% and post-December 10, 2023. of 34%. Today the gap between the parallel exchange rate and the effective official exchange rate for importers is at a minimum below 10%strongly reducing exchange rate uncertainty and its impact on inflation expectations.”
The organization chaired by Santiago Bausili justified this move with the ground covered in the “normalization of the domestic payment system” and also the “external payment system”. Among the milestones that the Central Bank marked to support this new monetary policy are “the downward trajectory of retail inflation”, “the favorable outlook for underlying inflation” and the moderation, in real terms, of monetary issuance.
The liquefaction of the Central Bank’s remunerated liabilities had been reduced in recent weeks due to the slowdown in inflation: with a CPI around 15%, fixed-term rates of around 9% remained negative, but much less than at the beginning of the Caputo-Bausili administration.
In fact, in February, fixed terms beat the dollar with returns in hard currency and the carry trade reemerged as an old well-known strategy among investors.
“Since December 10, the monetary base and the broad monetary base (including liabilities remunerated in pesos) have been reduced to 17% per month and 14% per month in real terms, respectively. The contribution of this monetary anchor to the slowdown of inflation has been possible from the immediate resolution of two large accumulated macroeconomic imbalances”, explained the organization and referred to both the monetization resulting from the fiscal deficit and the reabsorption of pesos via the Bopreal, the bond with which the Central seeks to settle the debt with the importing sector.
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