On the 12th of next month, the price evolution data for September will be knownwhich would be high again, although below the previous level and the big question is whether there will be an adjustment in yields before the elections (scheduled for October 22) or not.
And, after knowing that information, The BCRA resolved to leave the fixed-term yield unchanged at 118% nominal annually, which is equivalent to 9.7% monthly and 204% effective annually.l.
Fixed term: BCRA’s rationale for not changing rates
As explained to Ambit the Eco Go economist Sebastian Menescaldialthough the data was worse than expected, the decision was based on the fact that it was considered to be a temporary peak and that it will tend to decrease in September and October, taking into account that the rise derives from the devaluation (and the agricultural dollar in meats).
This is what the economist anticipates from Equlibra Lorenzo Sigaut Gravinawhen he points out that for the current month “that price dynamics will remain high, although a little closer to 11% given that increases were postponed and many items were frozen, such as fuel and prepaid bills, and the question is whether it makes sense to raise the rate or not, which is around 10%, with that level of inflation.” .
The Government also trusts that, since a higher-than-expected index was recorded last month, it will surely be lower in September.. Thus, taking into account that the price data is usually known in the middle of the month and that is when the rate increase is defined, what is done is to do so based on the average of the inflations of the two months (September and October, in this case), so it is likely that the BCRA will keep them still again in October.
Fixed dollar: a key variable
And, on the other hand, Sigaut Gravina points out that, With an official exchange rate fixed at $350, the current fixed-term rate becomes very attractive in the short term. I think that the strategy is not going to be about raising rates, but more than anything it is going to be about keeping the exchange rate fixed.
“It must be taken into account that, since the official exchange rate is fixed until the October elections, the less sophisticated saver who resorts to the official dollar would have an insured loss against inflation in the event of dollarization and with the traditional fixed term he would lose less. . Therefore, there would be no reason to raise it, unless we want to continue the attempt to have positive real rates,” says the economist from the University of Avellaneda. Pablo Ferrari.
The economist is oriented in a similar direction. Federico Glustein, who observes that, “given the economic situation and strong inflation, a rate increase today seems innocuous at this time.” He considers that, in the current electoral context, it will not be a determining variable to cut the dollarization trend, on the one hand, and, on the other, he mentions that “continuing to raise the rate is a time bomb because it increases the interest payment for the Leliq and a permanent brake on activity.”
However, it does not rule out that, if there is a worrying dynamic in the dollar or an inflationary jump in September, the rate may possibly rise in October in line with a monthly return of 12%.
Fixed term: how the dynamics come
On the other hand, the BCRA looks at the dynamics of fixed terms to define its monetary policy. Glustein warns that, although a substantial drop is not observed, due in part to a good nominal result, exchange rate instability and the lack of security in accessing official currencies, a retraction is seen.
Sergio Chouza, director of the consulting firm Sarandí, describes in this regard that, “In the first 15 days of the month, fixed terms rise one or two points below inflation”, but he does not consider this to be a worrying trend. “There is no disarmament, far from it, of current account balances either,” he says. Consequently, the fixed deadlines represent approximately $17 billion at this moment and come with a growing dynamic, although below monthly inflation and that is a key factor to follow.
However, for the moment, Chouza anticipates that does not see a shift in the rate prior to the elections, with inflation that will moderate and get closer to the 10% area.
“We believe that we will wait to see the result of the contest and that, based on that, we will quickly decide what to do, just as happened in the PASO, when several emergency decisions were made the next day, after the 22% increase in the official exchange rate,” he concludes.
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