He Central Bank of the Argentine Republic (BCRA) announced the deregulation of the minimum rate for fixed terms and the reduction of passive repos in TNA from 110 to 80 percent. The changes, key for investors, also have an impact on the dollar and the carry trade.
With the measures implemented, the BCRA seeks to “strengthen the national economy and improve liquidity in the financial market.” In that sense, he stressed that “at a time when positive signs are emerging on the country’s economic horizon, these actions seek to consolidate stability and encourage growth.”
In this way, he announced that as of Tuesday, March 12, the monetary policy rate will be reduced to 80 percent TNA to “stimulate consumption and investment in the economy.”
On the other hand, he announced that on Monday, March 18, access to the transfer window will be limited to financial entities regulated by the BCRA to guarantee more efficient and transparent liquidity management.
Finally, this Tuesday the minimum fixed-term rate will also be eliminated.
This is to promote “greater competition in the banking sector and benefiting consumers with better savings and investment conditions.”
Deregulation of interest rates: the BCRA’s explanation
“These Central Bank initiatives reflect a proactive approach to face the current and future challenges of the Argentine economy, addressing both the need for stability and growth,” they said from the country’s highest financial institution.
In turn, they added: “Through the normalization of the domestic and external payment system, together with a positive outlook on underlying inflation and prudent management of monetary policy, the BCRA is committed to strengthening the country’s economic fundamentals and foster an environment conducive to sustainable development”.
“The implementation of these measures is a testament to the Central Bank’s commitment to economic stabilization and post-pandemic recovery, laying the foundation for a promising economic future in Argentina,” he concluded.
Changes in interest rates: what analysts say
From the consulting firm PPI, they gave their opinion on the measure: “In today’s roundtable we will see if this reduction in rates, which hits the benefits of the carry trade, has its effect on the exchange rate. “As the exchange rate has not been modified and in a few days the inflow of foreign currency from the harvest will begin to be weighed, the variations in the dollar could moderate.”
“In this sense, we can reiterate the property that the Merval has shown in hedging, although imperfect, the exchange rate. In the event that the volatility of the FX increases, we can expect that the local stock market will also reflect this increase in volatility and , in the eyes of investors, the hedging function weighs more, especially in a context in which there are no other clear drivers for equities,” they added.
Pablo Ferrari considered that “it must be emphasized that nominal interest rates below inflation imply negative real rates, one of the peso liquefaction instruments conceived by economic policy.” “In short, the Government reduces rates because inflation tends to reduce, as a result of a gigantic slowdown in the economy,” he said.
For the economist Jorge Carrera, former director of the BCRA, he maintained that “to reduce the issuance of paid liabilities, we insist on maintaining an extremely negative real rate in the repos of the Central Bank with the banks and that is transmitted to fixed terms and other instruments in remunerated pesos and the floor for the rate for savers is also eliminated.”
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“The intention does not seem to recover the demand for money, but rather to advance in minimizing the real amount of pesos and the M3 aggregate. Doing so in this way destroys the most consolidated savings instrument in pesos of the Argentine financial system, which is the Fixed Term. Eliminating the minimum rate for human beings is an unnecessary evil towards a sector of the middle class and retirees who are the traditional unsophisticated depositors. It is forcibly pushing them to dollarize,” he said on the social network X.
And he said: “You could remove the minimum rate for legal entities and leave it only for human persons with a limited amount of pesos (20 or 30) million. They are the least sophisticated depositors and those with the least capacity to “negotiate” the rate with the banks. The euthanasia of the fixed term also raises questions about the fate of the financial system, which increasingly appears more and more oversized. Let’s hope someone is thinking about that transition. It is very delicate to take false steps in that territory, especially when the “reform” of the system coincides with a recession rarely seen that reduces the demand for loans and will deteriorate the collectability of existing ones. Finally, as we anticipated in December, the message seems to be to prepare the way for dollarization or currency competition where the initial condition “is minimizing the real amount of pesos. Not stabilizing the demand for money.”
Camilo Tiscornia stated that the measure “seems quite logical because the Government expects a good income of foreign currency and they do not want the dollar to continue falling.” “You cannot continue with the exchange rate with this dynamic of 2% per month even if inflation is falling,” he added.
Source: Ambito
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