President Javier Milei announced from the United States the beginning of a stage of “monetary tightening” by which the Central Bank (BCRA) will also stop issuing money to buy foreign currency, in order to contain inflation and the rise of the dollar. A measure that begins to take effect this Monday and is faced as “a new upgrade of monetary policy“What does it consist of? And what can happen in the markets?
“From now on, the amount of money remains the same or is reduced (if the Central Bank were to sell dollars in the Mulc). That is, if the BCRA were to buy dollars in the Mulc, the equivalent issuance of pesos will be sterilized with the sale of equivalent dollars in the cash settlement market (CCL),” said the Minister of Economy Luis Caputo and added in his account of X: “To the extent that the BCRA injects pesos by buying dollars in the Mulc, will effectively sell dollars in the CCL to sterilize those pesos. That is, the amount of pesos will no longer grow. It will only shrink, since we have a surplus.”
“The peso will be the scarce and in-demand currency, since taxes will continue to be paid in pesos. The absorption is by the amount of pesos. That is, the Central Bank withdraws only the pesos issued and keeps the net dollars to the extent that there is a gap,” he concluded.
Dollar, bonds and inflation: how the new monetary regime will impact
This new scheme raises doubts about the Central Bank’s process of accumulating reserves in pursuit of a lowering of parallel dollars and maintaining inflation at a level of 4% that it will gradually decrease. It is worth remembering that Javier Milei himself clarified that one of the conditions for leaving the exchange rate restriction is that inflation converges to the 2% crawling peg. However, doubts arise from the timing: for the market, this process could lead to the restriction being maintained for longer than expected.
Although in the last two months the base expansion by purchase of foreign currency has been null (and the President himself discounts that the next months will be seasonally demanding in dollar flow matter (which makes the measure seem somewhat trivial), a lower accumulation of reserves raises questions about the ability to repay foreign currency debt, which now also includes the Bopreales.
It would not be surprising, therefore, if the prices of these bonds were affected (sovereign risk will sooner or later end up incorporating a more uncertain horizon for the accumulation of reserves). In the last few hours, the Ministry of the Economy has been in charge of providing certainty, clarifying that There is no doubt about the ability to pay, which does not imply that a fall in the securities will be seen in the coming days.
“If what the Government is seeking with this announcement (of not issuing) is to generate optimism, it is useless,” said economist Rodolfo Santángelo in radio statements. To “neutralize or sterilize the monetary impact, it is assumed that it will go out and sell dollars on the market (…) through the operation of bonds,” he added.
“Instead of liberalizing the exchange market and not having to issue money to buy dollars from exporters, they are blowing them up (harming them) twice. TEverything seems to indicate that (from the government) they fell in love with interventionism and the confiscation of the fruits of other people’s labor,” economist Roberto Cachanosky harshly criticized on the social network X.
Another point to bear in mind is that sovereign bonds may also come under pressure. Salvador Vitelli of Romano Group said: “This is aimed at reducing the gap, but at the same time that it is reduced, the net purchase tends to zero, taking the BCRA out of the exchange market”.
“If the reserve accumulation objective loses priority and the BCRA is also going to sell in the gap, the bond market will not take it well on Monday”predicted analyst Amical Collante.
“The market is nervous because it cannot find a catalyst that will take it to another level in the short term. The good news is that inflation is falling (…) But what remains? The ‘cepo’. The market is starting to try to understand when to get out and a new condition always appears that seems to be further down the road. With a gap of 50%, getting out of the ‘cepo’ would imply a devaluation,” commented Paula Gándara, analyst at Asset Management Adcap.
This week’s key: what will happen with the puts
“Another bomb that the government must defuse as soon as possible, and this week will be key, is the one of the famous ‘puts’, because it is still a mystery as to when the banks will want to exercise their (legal) right without obligation,” said a financial analyst from a local brokerage.
Banks have the possibility to sell bonds to BCRA if its value falls below a certain level, which works as insurance (put) to avoid facing losses.
“The Government finally arranged the creation of Fiscal Liquidity Letters (Lefi), which will replace the passive transfers of the BCRA, whose operation will end on July 22. The aim is to eliminate the endogenous monetary emission of the BCRA, although now the cost of the ‘Lefi’ will be faced by the Treasury, so the fiscal order becomes more relevant than before,” said the SBS Group.
For economist Marcelo Rojas, “the new ‘Lefis’ will fulfill their purpose to the extent that the economy shows signs of recovery with a horizon of certain exchange rate tranquility, where Controlling inflation will be central so that initiatives can be planned in conjunction with the return (of mortgage credit)”.
Meanwhile, Grupo IEB highlighted: “the repayment of debt from the BCRA to the Treasury (Lefis) puts again to anchor the program in the focus of market monitoring, “since the pressure to maintain the fiscal surplus will be even greater. The president (Javier Milei) assured that a (fiscal) surplus would have been recorded in June as well.”
Source: Ambito
