Fixed term alert: BCRA analyzes what to do with the rate while waiting for inflation and has a dilemma

The rate It is a key element of monetary policy. The Government is using it as instruments to liquefy the liabilities of the Central Bank (BCRA) and the pesos of the economy. For this reason, it took it to levels that lagged behind inflation in just five months. A few days ago, he lowered it by another 10 percentage points and placed it at 50% annual nominal (TNA). This Tuesday the Consumer Price Index (CPI) data will be known and the expectation about what the Central can do arises again.

The latest rate reduction was the third time in less than a month that the BCRA cut it and the fifth in Santiago Bausili’s management at the helm of the financial regulator. Thus, after the last adjustment of 1,000 basis points made by the BCRA, The repo rate (which is the monetary policy rate) was 4.2% monthly In front of one inflation which is estimated to be around 9% in April.

Likewise, the Annual Effective Rate (TEA) went from 79.6% to 64.8% facing an interannual inflation that is estimated at 189.4%, according to the Survey of Market Expectations (REM). For their part, private banks implemented yields for traditional fixed terms below 4% monthly.

The Government’s plan for the fixed term rate

As said, what you are looking for the government is continue with negative real rates to continue liquefying stocks of pesos in the economy and, at the same time, make the instruments placed by the Treasury more attractive. By lowering the reference rate, Treasury debt assets become more interesting.

In that sense, everything indicates that the monetary policy rate could continue to decline and, with it, that of fixed terms in banks. However, what it does will depend on several factors: the level of foreign exchange income from the harvest, the evolution of economic activity and inflation, as well as the Treasury’s debt placement capacity.

However, as inflation falls, the margin to maintain that path is less. The Government has several inflationary anchors for the Milei-Caputo economic plan and one is the monetary one, with this negative rate.

The Government faced with a dilemma over the rate and the stocks

Nevertheless, If the objective is to lift the trapas anticipated by the Minister of Economy Luis Caputo, should correct the rate so that it becomes real positive. It is not possible to end the framework that limits access to the dollar in Argentina with a rate for instruments in pesos as low as the current one compared to inflation. And if they do not take measures in that sense, the exchange rate could skyrocket sharply and that would bring many problems for the current government: the main one, a spike in inflation.

This is what he warns from his X account (ex-Twitter) the economist Christian Butelerwho points out that “in a free market you cannot sustain a rate that is half the inflation without affecting the dollar” and points out that “there are more than 2 monetary bases that are in remunerated liabilities losing against inflation.”

Consequently, The Government is faced with a dilemma: maintains everything as it is and continues to deepen the process of asset liquefaction that has been giving results, at least until now, in its goal of slowing down inflation or begins to focus on its promise to lift the stocks and focuses on accommodating the rate in that sense.

Everything indicates that We will still have to wait to see a positive real rate for now. It seems that he will stick with the chainsaw and blender policy for some time.