The Central Bank took 5 measures with an impact on the financial system, which modifies different aspects linked to the dollar, international reserves, imports and interest rates.
In the official statement, the BCRA explained the reasons that led to taking the measures:
The Central Bank took 5 measures with an impact on the financial system, which modifies different aspects linked to the dollar, international reserves, imports and interest rates. These are:
- Flexibility of access to the MLC for micro, small and medium-sized enterprises (MSMEs): Companies that qualify within the MSME segment will have the possibility of paying for their imports of goods within a period of 30 days. The measure covers all imports with customs clearance as of April 15 that previously had payment terms in installments of 30, 60, 90 and 120 days.
- Flexibility of access to the MLC for advances on capital goods for MSMEs: For the particular case of imports of capital goods, companies in this segment may pay in advance up to 20% of the value of the good to be imported.
- Reduction of the monetary policy rate: The interest rate on passive repos is set at 70% TNA.
- Normalization of liquidity management through reserve requirements: As of April 15, the reserve requirement on balances in paid demand accounts of money market mutual funds is modified, going from 0% to 10%. This measure moves in the direction of normalizing the prudential regulatory treatment of accounts of a similar nature.
- Deactivation of the swap with the Bank for International Settlements (BIS): Within the framework of the cleanup of the BCRA’s balance sheet and the honesty of the economic variables, the BCRA completed the cancellation of the disbursements received under its Credit Facility Agreement with the BIS. In this way, the BCRA’s gross reserves no longer include the amount of this facility nor its liabilities in foreign currency, without affecting the net reserve position. The liquidity position of the BCRA is not affected either since the contracted facility operated under the unavailability characteristic. The measure will produce savings to the BCRA of more than USD 10 million annually. The BCRA may resort to agreeing swap lines with the BIS in the future to the extent that it is convenient.
In the official statement, The BCRA explained the reasons that led to taking the measures:
MONETARY BALANCE FACTORS
The downward trajectory of retail inflation. After the initial correction of relative prices in December 2023, a pronounced slowdown in inflation is observed, despite the strong statistical drag that inflation carries in its monthly averages. More frequent price surveys have been useful to appreciate end-to-end monthly dynamics. In the coming months, measurements of underlying or core inflation will take on greater relevance in the diagnosis of the trajectory of inflation, in view of the announced adjustments to regulated tariffs for public services.
The moderation, in real terms, of the monetary issue and the consequent improvement of the Central Bank’s balance sheet. Since December 10, the monetary base and the broad monetary base (including liabilities remunerated in pesos) have been reduced at a rate of 10.5% and 5.8% average per month, respectively, in real terms. The contribution of this monetary anchor to the slowdown in inflation has been possible from the immediate resolution of two large accumulated macroeconomic imbalances:
- First, the elimination of monetization from the fiscal deficit which, in 2023, through direct and indirect sources, escalated to 5% of the Gross Domestic Product (GDP). In fact, since December 10, the monetary effect of fiscal policy has been opposite and virtuous, reducing the amount of pesos in circulation by around $0.8 trillion. In this way, progress is made ahead of the goal of accumulated net financing equal to zero for the year 2024, agreed in the memorandum of economic and financial policies with the IMF.
- Second, the wide voluntary acceptance of the Bonds for the Reconstruction of a Free Argentina (BOPREAL) which, by operating as an exchange swap, strongly reduced the unwanted holding of pesos and the potential demand for foreign currency in the short term. BOPREAL’s placements for approximately USD 8 billion provide deferred access to foreign currency, predictably through the Free Exchange Market (MLC). The debt account of importers reached a historical record of USD 58 billion towards the end of 2023, due to inconsistent and discretionary management of foreign exchange and foreign trade policy. In this way, it has been possible to respond to the pending demand for foreign currency without compromising macroeconomic stability.
EXCHANGE BALANCE FACTORS
The sustained accumulation of international reserves. As of December 10, 2023, the BCRA has been able to buy steadily in the MLC, reversing the previous trend in 2023 in which net international reserves fell by USD 23.4 billion. These purchases contribute to an accumulation of net international reserves of USD 8.7 billion at the end of the first quarter of 2023 (IMF target methodology) since that date.
The stability of the gap between the official price of the dollar and the parallel quotes and the downward correction in the price of future dollar contracts on the official exchange rate. The exchange rate gap has fallen sharply, both from its pre-December 10, 2023 peak of around 200%, and post-December 10, 2023 peak of 60%. Today the gap between the parallel exchange rate and the effective official exchange rate for importers is below 5%, strongly reducing exchange rate uncertainty and its impact on inflation expectations. Additionally, the low volatility observed in the different gap measurements has contributed to anchoring nominal expectations. Finally, dollar futures contracts (Rofex) have shown systematic and forceful falls, indicating a strong increase in confidence in the consistency of the current macroeconomic policy framework.
Source: Ambito
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