Forty days after the beginning of Milei’s administration, the monetary mandate seems to be clear: liquefy the entire stock of debt in pesos as much as possible. According to an analysis prepared by the consulting firm GMA, assuming an inflation of 25% for January (according to the Market Expectations Survey), the monetary base liquefied 14% in just over a month. However, there was also an expansion of pesos and it responds to at least three factors. Which are?
1. Purchase of currencies
The main engine of weight creation was the purchase of foreign currency within the framework of the recomposition of the level of reserves. The amount was $3.55 billion. From the beginning of the administration, and then much more accentuated after the devaluation, the Central made net purchases in the MULC in all wheels. More precisely, it has accumulated more than US$5 billion since December 11. This dynamic could be sustained thanks to a private foreign exchange demand still depressed. The change in the import system (SIRA vs SEDI) caused a window of time in which obstacles persist.
2. Interest generated by Leliq and repos
Although they are now extinct, they were established as the second turbine of pesos ($3.13 billion). “Stop the growth of the quasi-fiscal deficit” was one of the objectives explained in the last Monthly Monetary Report. The reduction of the monetary policy rate from 133% TNA to 100% TNA slowed down the rate of emission of the Central Bank’s liabilities, although the inertia continued.
3. BCRA open market operations
The “Other” item, which reports the purchase/sale of bonds, futures and liquidity puts, expanded by $2.6 trillion. Regarding the put options, these were massively sued by financial institutions in the first days of management due to the behavior of the dollar linked and CER bond curve postdevaluation.
What was the fundamental counterweight to the increase in the monetary base? The absorption of weights by the remunerated liabilities reached $7 billion. In detail, $4.4 billion of Leliqs were dismantled, while the passes captured $11.3 billion.
The paid debt, In line with the unspoken goal of liquefaction, it also underwent actual pruning. Despite nominal growth, taking January inflation of 25% in line with the REM, paid liabilities fell 25% in quantity in the last 2 months. Meanwhile, passes explain 96% of the total stock.
Finally, back to the breakdown of the “little machine”, how the temporary advances and the turn of profits were null during the new administration, the sum of issuance windows linked to the public sector was contractionary in peso terms. Although this path is correct, the fact that the real rate is negative embodies a problem: it is that the price of liquidity is very low and real balances that are not transactional could quickly become so.
Monetary issue 2024: what to expect
According to EcoGo, andl stock of remunerated liabilities It will contract from 8.2% of GDP in December ($26.5 billion) to 4.6 points of product ($23.3 billion) in March of this year. Measured in dollars, the consulting firm estimates that in that same period they will go from US$41.3 billion to US$27.5 billion at the official exchange rate, or from US$27.9 billion to US$19.9 billion at the CCL.
From LCG, for their part, they add that facing 2024 that has just begun, without direct assistance from the BCRA to the Treasury to finance the fiscal gap, it will remain to be seen if the interventions in the debt market until the acclaimed fiscal convergence occurs. In parallel, we understand that the monetization of the trade surplus achieved will be sustained, although if the exchange rate begins to lag, the numbers could be somewhat lower. On the other hand, the new composition of the Financial sector, Adding the drop in rates casts doubt on its behavior for the coming months.
Source: Ambito
