Phase III of the Economic Program progresses, with some very positive data such as the Inflationary rate slowdown, the consolidation of fiscal equilibrium, the flexibility of the exchange scheme and the ordering of monetary policy. Like any stabilization process, to the extent that it is evolved on compliance with the initial objectives, The discussion begins to migrate to other equally important points.
In June / July, the conclusion of the transitory scheme of retentions, with monetary seasonality and with the New package of measures that definitely eliminate the Lefis and the role of the BCRA as an overnight refuge of surplus weights.
The objectives of the economic program seem clear, the short -term priority is to continue lowering the nominality even at the risk of assuming some costs on other fronts. The decrease in inflation in a scenario where interest rates remained without change, led to levels of high rates, which had not occurred in recent years.
It is that between the end of June and the beginning of July several factors are combined that lead to these rates levels. The first is the Sustained recovery of the real demand for money, where banks continue to grow in credit in pesos and shrink their liquidity surpluses. To that expansion of the real demand for money is added the seasonal need that first arises due to the payment of tax (May and June), and then coming from the side of the payment of bonuses and vacations. The reasons are similar to those of December, with a somewhat lower scale.
The corporate segment is the one that needs the box and is transferring it to the segment of individuals. That implies more effective and an atomization of deposits. For some companies it implies the need to take some lines that allow you to cover that need for cash.
The thermometer with which the market measures this need for liquidity is the short -term rate. When the market is with a lack of liquidity, the bond rate is the one that is rebounded. That happened in recent weeks, approaching at times the fixed term rate and well away from the paid accounts rate. Even the rates for paid accounts were also gradually rising to the extent that this lack of liquidity was consolidated.
Lower Liquidity and Cajar Upper / Remu
The question is to understand if this can be maintained forward or if the seasonality passes and the cancellation of the Lefis ends.
The positive data is that the banks were not encouraged to “consolidate” the rates increase the remuneration for fixed -term deposits. In other words, they are still waiting for the lack of liquidity to be transient. There are many factors that have to accommodate in the coming weeks while migrating to the new scheme.
Impact on the peso curve
The pesos curve comes from several wheels with a strongly negative slope, Something that began to soften in recent days. The short rates were high in the face of the demand of the banks and the lack of liquidity that was perceived in the market. But the last tender marked a change in that regard.
Until now, the treasure could regulate the liquidity in these tenders, cutting above or below depending on how the market was.
In the last one, the impact of the lack of liquidity was notorious, because the offers did not reach 65% of the maturities and The role did not reach 60%. The reheating of the bond rate caused some positions to lose meaning if they were leveraged and that the investors require liquidity to rearrange their positions.
This week we can understand if the rates are rearranged and the liquidity returns or this process is maintained as a mechanism of “exchange control”.
Accumulation of interest and interest rates
The balance of the exchange market, today near the midpoint of the band, is the consequence of the incentives for the supply and demand of currencies. High real rates help generate lower equilibrium points. In short, A little liquid market in pesos, with high real rates encourage a lower exchange equilibrium.
Reading can also be done in reverse. A low exchange rate requires higher interest rates to stay in balance.
These factors are those that are affecting the exchange balance and interest rates. If the market reading is that the exchange rate has margin to climb, it will look for a major award to stay in pesos (interest rate).
The futures market is the factor to finish assembling this puzzle. And it is so where the BCRA has taken an active position that generates some nervousness in the market. If it is perceived that the exchange equilibrium depends on a salesman of futures of the BCRA, the market will require a higher interest rate to compensate for the risk that that balance will not be maintained.
The market attentive to the presence of BCRA in futures
That is why the increase in the position sold of the BCRA during May (which was confirmed a few days ago), generated a certain Increase in uncertainty forward. In addition, in the last days a greater volume of selling supply in the short term was noticed, something that the market usually attributes quickly to the BCRA.
In contrast to this negative data, the confirmation that the treasure began to Buying “USD offer blocks” is also positive, because it makes it clear that the treasure can be a buyer within the band and that the accumulation of reservations is given regardless of whether the exchange rate is not operating on the band’s floor.
In short, the market will remain attentive to these movements and especially Waiting to understand how liquidity in pesos is after the liquidation of the treasure debt tender.
If the liquidity and short rates return, we can see a scenario where real rates are gradually rear. If instead that liquidity does not return or fails to impact short rates, we can be facing a scenario where the high levels of real interest rate are sustained at least until the end of the electoral process.
Megaqm chief economist
Source: Ambito
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