The new monetary regime debuts: the keys to what will be phase 2 of Javier Milei’s plan

The government of Javier Milei enter your Phase 2according to the President’s own definition, and the second semester begins with the Bases law and the fiscal package approved, and with a new stage of monetary policy, announced late Friday by the Minister of Economy, Luis Caputo, and the head of the Central Bank, Santiago Bausili.

In this second stage, the Government seeks to reduce the interest paid by the Central Bank and achieve zero issuance. Subsequently, in a third stage, the exchange rate restriction would be lifted.

It was announced that the BCRA will stop issuing money to finance its remunerated liabilities, as part of the second stage of the stabilization plan that the Government intends. “We want to provide greater certainty and greater solidity so that in some way there stops being anxiety about when the exchange rate trap will be released.”Caputo said about the current restrictions on Argentina’s foreign exchange market.

“We will replace the liabilities of the BCRA with those of the Treasury and it will be the Treasury that will pay the interest. The BCRA will continue to manage monetary policy, but it will no longer suffer the consequences of interest rate movements resulting in greater monetary emission. These movements are going to end in greater treasury indebtedness. That is to say, Treasury makes double commitment to its fiscal performance“, he pointed Bausilihead of the national financial body.

In that sense, he considered that The decision “returns autonomy to the BCRA, which can set the interest rate without worrying about the damage it may cause to its own balance sheet.” The official hoped that it could “move comfortably to a positive rate in real terms and the only thing it does is bet on a macro balance that will be resolved by fiscal performance. This is the tool that the BCRA has to focus on its main objective: eliminate inflation“.

With the objective of reducing monetary emission to the minimum possible, The BCRA will transfer the paid debt to the National Treasury, which will open a process of obtaining external financing that will allow us to meet the responsibilities that are due in the short term.. There will be a monetary regulation letter that banks will access to place their excess liquidity“, he said.

Interest rate and reserves

“Agents will be seeing the strength of the peso based on the Treasury’s commitment to comply with the zero deficit,” said Bausili. He explained that the second stage of stabilization “returns autonomy to the Central Bank, because You can set the interest rate without worrying about the damage it may cause to your own balance sheets. “The conflict of interest is over.”

Besides, He considered it “reasonable” that the interest rate would go, with these measures, “into positive territory in real terms.” He said that talks with banks would begin on Monday and that specific regulations to implement this “second stage” of the economic programme would be published in the next two weeks.

Regarding reserves, Bausili said that it was expected that reserves would be lost from June to September. “Within the stipulated program, a loss of 3 billion dollars was expected. It is normal. And in the third quarter they recover,” said the president of Central. He noted that as “winter came early” with the “colder May,” June’s numbers were negative, or a virtual zero.

Third stage of the stabilization program

The minister also insisted that “There is still no date for the lifting of the restrictions” and confirmed that The PAIS Tax rate will be lowered once more money begins to come in due to the tax reform.

“We are going to lower the COUNTRY Tax, as we said from day one. It will be as soon as the Base Law is regulated and implemented and the Treasury begins to receive the income from the fiscal package. It will probably be between August and September,” they explained.

International Monetary Fund

The Minister of Economy, Luis Caputo, This afternoon he avoided specifying how much money Argentina will ask the IMF for in the next agreement and pointed out that the negotiation “has just begun.”

He also highlighted the statement issued by the Monetary Fund to highlight the approval of the Bases law and the tax park.

Official dollar, blend dollar, devaluation or crawling peg?

In addition to these announcements, they gave some forecasts regarding the dollar. A new devaluation of the official dollar was ruled out, and it was announced that they will continue with the “crawling peg” at 2% monthly, in addition to maintaining the “blend” of 80-20 for exporters. The exchange rate would only be eliminated in a third stage.