Two weeks have passed Since the launch of the current monetary scheme, the initial stock of the new Liquidity Fiscal Letters (LEFI) held by banksthe instrument issued by the Treasury that replaced the passive repurchase agreements of the Central Bank, was considerably reduced. During that period, Financial institutions sold a total of $2.66 trillionwhich resulted in a monetary expansion of the same magnitude, as shown by the BCRA data updated until Friday, August 2.
The LEFI were issued by the Treasury on July 17, then exchanged with the Central Bank and finally on Monday the 22nd of that same month they began to be operated between the entity chaired by Santiago Bausili and the banks within the framework of the launch of the so-called “phase 2” of the economic program. That day, the migration of remunerated debt in pesos from the BCRA to the treasury was completed, with the objective of ending the endogenous issuance that represented the payment of interest on the repos at the cost of transferring that cost to the Treasury (which must face it with an extra adjustment in other items).
On the day of its debut, financial institutions bought $10.85 billion from the Central Bankan amount that involved the collection of all the pesos that were placed in passive transfers the previous Friday (the last day of validity of that instrument).
Since then, there has been a constant variation in the stock of LEFI in the banks’ portfolio. It first grew during the next three rounds until reaching $11.92 billion (the entities bought more bills), but then it began to descend. The banks began to dismantle their holdings of LEFI and On August 2 (last official data available) there were $8.18 trillion left.
Where do the pesos go?
Thus, in the cumulative since its launch, Banks sold $2.66 trillionthat is to say, 25% of the LEFI that had initially purchasedThe fact that there are daily variations in the stock of these bills is not surprising since, by replacing passive repurchase agreements and operating in a similar manner, they became the main instrument for managing the liquidity of the financial system. But the drop recorded between the peak on July 25 and August 2 was significant ($3.7 billion).
The question that arises is Where do the banks direct the pesos they rescue from the LEFI?. In principle, the sources consulted agree that these are liquidity needs for the same purposes for which they previously dismantled passive repo positions: to meet deposit outflows from their clients, temporary liquidity needs, loan requests, rotation towards other Treasury debt instruments or a combination of all of these.
Gabriel Caamanoan economist at Outlier and Consultora Ledesma, analyzed it in this way in dialogue with Ambit: “Banks don’t have many options to turn to. That’s bank liquidity: They may be satisfying a deposit disarmament or lending a part. Because there have been no Treasury tenders in recent days and they are not going to enter the secondary debt market because they need liquidity.”
Caamaño recalled that at the end of the month there was always a greater demand for liquidity and dismantling of repos, “often because banks have to apply the pesos to reserves to comply with the minimum requirements regulations.” Although in the first two days of August the sales of LEFI continued. At that point, the analyst highlighted that those days there was also demand for active repos (for $53,000 million), which reflects that there was “obviously a need for liquidity.”
The new scheme and monetary expansion
The LEFI are part of the new monetary scheme launched by the Government within the framework of what it called “phase 2”. The objective was to carry out the final migration of remunerated debt from the Central Bank to the Treasury to end the endogenous issuance that represented the payment of interest on passive swaps by the BCRA.
Now, the monetary regulation instrument is a bill issued by the Treasury, which is responsible for paying the interest from a greater fiscal adjustment. The rate continues to be set by the BCRA and the monetary authority is the one that operates the bills daily through the purchase and sale it carries out with the banks as a mechanism to manage the liquidity of the system.
On the latter, The BCRA made a change to the trading hours of the LEFI that will come into effect on August 12. Through communication “A” 8083, published last Monday, it was indicated that from now on banks will be able to sell all or part of the bills they have in their portfolio every business day between 4:30 p.m. and 7 p.m., with settlement at 9 a.m. on the following business day, or between 1:30 p.m. and 3 p.m., with settlement starting at 3 p.m. on the same day.
Although migration made it possible to end endogenous issuance through the payment of interest on repo notes, this change did not imply that it was planned to end the growth of the amount of money in the economy. The Monetary Framework published by the BCRA a few days ago opened the window to a monetary expansion of more than $36 billion between now and the end of 2026despite the announcement of the closure of the issue for financing to the Treasury, for remunerated liabilities, puts (there are still a little more than $3 billion left) and purchase of foreign currency.
In this report, the BCRA indicated that it set a ceiling for the broad monetary base at the level existing on April 30 ($47.7 trillion), which is much higher than the current level of the monetary base ($20.65 trillion). It also indicated that it expects a remonetization process of the economy to take place from now on.
At the time, the economist Salvador Vitellifrom Romano Group, analyzed the projections of the BCRA and calculated thatbased on the current level of the monetary base (without considering Treasury deposits in the Central Bank as part of the broad monetary base since the Central Bank itself did not do so in its report), The economic team expects a real remonetization of the economy of 176% by December 2026.
For its part, the latest report from The consulting firm 1816 stated that the monetary plan “It is ambiguous” and he considered that this ambiguity could be intentional. Javier Milei and Luis Caputo spoke of the end of all currency issuance “in line with the President’s idea of ’endogenous dollarization’,” said the consultancy, but the Central Bank in its Monetary Framework outlined the objective of increasing the monetary base “without it being very clear through which issuance channel.”
For 1816The announcement suggests that “there has not yet been a complete definition by the authorities regarding the future monetary regime,” which could imply the need for a “balance between what Milei always proposed (dollarization) and what the Fund’s Staff technicians should demand.” “If the market had doubts about monetary policy for 2025, these were not answered by the new BCRA framework”he concluded.
Source: Ambito
