The Government made progress this Wednesday in the officialization of the regulatory framework for the creation of new securities that will complete the process of debt migration from the Central Bank to the Treasury. Thus, it will seek to end the monetary emission carried out by the entity to pay the interest on the remunerated liabilities of the BCRA, which in the future scheme will be faced by the treasury.
In a supplement to this Wednesday’s edition of the Official Gazette, the Executive published the decree 602/2024 that creates the Liquidity Fiscal Letter (LEFI)which will be issued by the Treasury and will be used to capture the remaining stock of passes issued by the Central Bank.
Article 1 of the standard establishes that the LEFI will have one year period and? a total of $20 trillion will be issued. It also defines that the letter will capitalize the monetary policy rate, which will continue to be defined by the body chaired by Santiago Bausili. The LEFI It will only be transferable and negotiable between the BCRA and financial institutionsand will be the new vehicle through which the Central Bank will manage the economy’s liquidity through daily purchase and sale operations.
LEFI: How will the new scheme work?
The decree enables the Executive Branch to exchange the LEFI with the BCRA for Public Debt Instruments that form part of the Central Bank’s portfolio, including Non-Transferable Bills. Eligible securities will be considered at their market price and LEFI at their technical value.
Once the exchange is complete, the BCRA will begin to use the fiscal bills to manage liquidity. Specifically, it will use them to force banks to replace their overnight repurchase agreements. Then, it will manage liquidity with daily LEFI purchase and sale operations.
The measure establishes that the Treasury Department must bear the financial cost of the bills that the BCRA places with the banks, which will imply that The Treasury must cover daily an amount equivalent to the interest accrued by the monetary policy ratewhich “will be deposited as collateral in an account established for this purpose” at the Central Bank.
Official sources indicate that the objective of this measure is end the monetary emission that generates the payment of interest by the BCRA’s passes, which will cease to exist. Now that cost will be transferred to the Treasury, which will face it from a greater fiscal adjustment. Since they are capitalizable over a one-year period, the interest on LEFIs will not impact the accounting tax result for this year but rather for 2025 (although the pesos have to be deposited daily by the treasury).
The big question is whether, after the implementation of the new scheme, the Central Bank will decide to raise the interest rate to try to contain exchange rate pressures. From now on, an increase in yields will not impact the monetary issue but will require the Government to make greater adjustments in other areas because it will increase the fiscal cost.
The Government maintains that this “second stage of the plan” is one more step towards leaving the stocks exchange rate, which was postponed to a “third stage” with no specific date.
But various analysts question whether the debt transfer from the BCRA to the Treasury represents a relief for potential exchange rate pressures in the event of the opening of exchange controls. They indicate that the stock of pesos is the same and that, ultimately, the variable to monitor will be the deposits of savers, which are the opposite of both the repo and the LECAP acquired by banks and the future Fiscal Liquidity Letters.
The truth is that Javier Milei has once again pushed the deadlines for lifting the restrictions. This Tuesday, through his X account, he added a new condition to the two requirements he had already set to lift the restrictions: to the elimination of the remunerated liabilities of the BCRA and the puts (insurance on public securities that the Central Bank placed with the banks and which constitute a contingent debt for the entity), he now added that inflation and the monthly devaluation rate converge around 0%. An objective that no economist expects to be met in the remainder of the year.
Source: Ambito
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