The BCRA’s transfers are gone and the LEFI are coming: how the market receives Luis Caputo’s new move

Within the framework of the “second stage” of the economic stabilization plan announced by the Government, the Board of Directors of the Central Bank (BCRA) This Thursday, the Suspension of passive transfer operations Starting Monday, July 22, and through the Communication “A” 8060the technical and operational aspects of the Fiscal Liquidity Letter (LEFI) were defined, which, as announced, “will serve, from that date, as the main liquidity management instrument of the banking system.”

The transfer of remunerated liabilities will be carried out through the LEFI, issued by the National Treasury, and this bill will be capitalized at the monetary policy rate reported by the BCRA.

• According to the announcement, financial institutions will be able to acquire them and sell all or part of their holdings to the monetary regulator.
• This new bill will have a maximum term of 1 year and can only be negotiated between financial institutions and the BCRA.
• The LEFI will be operated at its technical value and will not count towards the Non-Financial Public Sector Financing limit (as provided in Communication “A” 8061 and as is the case with the LECAP).
• With the migration of the BCRA’s passive passes, the financial cost of this surplus of pesos will begin to be assumed by the National Treasury and, for this, the Ministry of Economy will make a deposit in the BCRA with the objective of covering the financial cost incurred in the management of liquidity with the bill.

This Thursday, the statement and the regulation were finally published. The communication that regulates them provides that The base amount will be maintained for the following days, in case of not reporting a new one or the intention of not participating in new purchases of “Liquidity Fiscal Letters” and that the operation will be effective after the closing of the MEP.

Entities may sell all or part of their holdings of Fiscal Liquidity Bills to the BCRA, through the “ECO – Operations Management” system, as follows between 18:30 and 20:30, with settlement at 9:00 on the following business day. And during any operating day, between 15:00 and 17:00 through said system, with settlement starting at 17:00.

“The Purchase and/or sale operations of Fiscal Liquidity Bills will be settled at their technical valueThe registration, settlement and sole depository agent for the bills will be the Central Registry and Settlement of Public Debt Instruments, Monetary Regulation and Financial Trusts and they may only be used for the purchase or sale operations described above,” the BCRA stated.

The market’s view on LEFI

And the market is beginning to digest the measure. As explained to Ambit the Economist Lorenzo Sigaut Gravina, “What the Government announced was that the second issuing channel was going to be cut off, which was the issue of remunerated liabilities.” He points out that they had already begun to migrate with “puts” from the BCRA and everything to the Treasury and now they are going to finish doing it with this instrument.

The Economist Jorge Neyro He agrees that “the advantage is that the BCRA will stop paying interest on liabilities and prevent this from impacting the interest account.” Thus, the quasi-fiscal deficit practically disappears and monetary policy is more effective.

According to Sigaut Gravina, this step “cleans up the balance sheet of the BCRA.” But he warns that, on the other hand, the burden on the Treasury becomes heavier. “For the banks, the creditor changes and it is not the same if it is the BCRA instead of the Treasury, which has a greater risk, especially with regard to the payment of debt in pesos,” he observes.

For his part, the economist Fabian Medina In an interview with this newspaper, he stressed that one of the advantages of Treasury bills is that, from January to June, they pay a higher interest rate than the Central Bank, except that the new ones have the same interest rate.

However, he also believes that “the main risk that banks run is not collecting them because, as they depend on the Treasury, increasing collection is a requirement to be able to pay them” and he considers that, in the current recessionary context, this is worrying. On the other hand, he points out that, with the BCRA bonds, if they have to collect, the monetary regulator would ultimately issue and pay.

A risk of the LEFUI, the solvency of the Treasury

Consequently, for Economist Fabian Medinaforward, “The main risk that banks run is not collecting them because, as they depend on the Treasury, it is a requirement that they only collect if the collection increases” and in the current recessionary context that is worrying. On the other hand, he points out that, with the BCRA bonds, if they have to collect and there is no debt rollover, the monetary regulator, ultimately, issues and pays.

Thus, Sigaut Gravina warns that, With this, public debt becomes heavier and the ratio to GDP grows.. In this sense, he anticipates that, in the short term, the goal of zero financial deficit will become more difficult. “We must ensure that the primary surplus is sufficient to pay the interest. Now more income is needed to achieve a surplus and pay higher interest on the public debt,” he explains. And, although he recognizes that some taxes are improved as a result of the fiscal package, everything is more demanding on the fiscal front.

For According to economist Juan Graña, this step by the Government is “rather than starting a second stage of the economic programme, it is also starting a deeper phase of the first one.”“. And, although he considers it a reasonable objective for the BCRA to operate with Treasury bonds and not its own, “putting so much debt in the Treasury, with its greater risk, at a time when the country risk is very high” and warns that, by 2025, the situation is seen as very complex in terms of maturities.

Graña argues, however, that beyond what has been stated, “the most worrying thing is that There are still no details on the lifting of the restrictionsnor of Fixes to ‘crawling-peg’ or the real exchange rate, which are the most critical elements in the short term.” And he emphasizes that this should be defined going forward.