In tax matters, it is noted that:
- Strong real rise in public spending; it rose 77% year-on-year average, -including estimate for April-; 12 pp higher than the inflation of the 1st quarter of this year.
- So far this year: the Platita plan -Sept-2021- was added to higher disbursements due to “normal” increases: retirees and active plant, together with the doubling of transfers to the private sector (energy subsidies).
- Elderly accounting primary deficit: it is estimated that it would have reached 0.5% ($ 375 billion including April -est-) vs 0.2% of GDP ($ 81 billion) between the 1st quarter of this year compared to the previous year
- Income from creative accounting entered: Was asharp rise in property income (300% year-on-year) due to accounting for the differences between the Cash Value awarded and the Face Value of the securities issued, which arises to a greater extent in CER securities.
- So, an approach to “true” primary deficit for the first quarter of the year would be 0.7% of GDP compared to 0.2% from the previous year.
In monetary matters, (mirror of the fiscal imbalance) it was recorded that:
- The BCRA expanded by fiscal origin $ 389 billion so far this year.
- There were two periods: an absorption/saving of $263 billion in the 1st quarter (reflecting strong placement of debt in pesos in the 1st quarter).
- Meanwhile, in the last two months expanded $653 billion (temporary advances for 0.4% and use of previously hoarded pesos for 0.3%).
Monetary Issue Graphic.jpg
- in simple, issued pesos on a net basis for 0.5% of GDP that overturned in the last two months.
- This is that there were many pesos turning around that were essentially not in demand (since the interest rate was perceived as negative) and that “ended up in goods”; accelerating the rise in prices.
Seen in this way, fiscal and monetary policy (even with the rate hikes) ended up being expansionary; validating an acceleration of inflation from 3% (2nd semester 2021) towards 5% per month (core inflation) this year.
Consequently, given public spending (energy subsidies and bonuses to mitigate the fall in real income -plans and retirees-) they would lead to consolidating inflation of 5% per month going forward.
In that direction, the indicators inflation advances for May They place her on a floor of the 5.2%.
At the same time, with this fiscal and monetary dynamic, the government would approve the goals (primary deficit, fiscal assistance and purchase of reserves for the 1st quarter (final evaluation in June). Meanwhile, those for the 2nd quarter “for now” would be higher difficulty in meeting the reserve purchase and primary deficit targets.
Strategy
In line with what was anticipated, the Treasury shortened the duration and offered again this week the short Lecers with some sweetener in between. Basically, what the market demands, in a context where the Treasury needed to raise pesos to cover the growing deficit. Thus, they achieved net financing $30 billion (pre 2nd round) rejecting orders for $50 billionand now we have the last tender for next Friday with maturities of only $160 billion.
After the fifth rise in rates in the year, we continue to point out that the Central Bank falls short in magnitude, in short, we maintain negative real rates and the disincentive to demand money remains with a Badlar with a TEA of 57%. They not only run below inflation, but also slower than the crawling peg, making it impossible to accumulate reserves. The flip side (opportunity) is reflected in cheap financing at rates well below expected inflation/devaluation.
Interest Rate Chart.jpg
Meanwhile, CER bonds continue to take a breather this month after the strong increases registered in the first four months of the year. This is justified, among other factors, by taking significant profits, dollarizing portfolios (cheap CCL –see below-) and paying taxes. These movements gave rise to a return to attractiveness in the short part of the CER curve; today oscillating between -3%/-0.5% vs real Tires that were able to reach -10/-15% a few weeks ago. We opted for primary auctions as the entry point for these specific titles.
Central Bank Net Purchases Graph.jpg
Beyond the recent bounce in the CCL -today at 210-, we maintain the position that the TC is still cheap. The speed of inflation positions it very close to minimum levels in real terms, and the recent decoupling with the broad WB gives us a signal that the CCL should adjust sooner or later.
Analyzing portfolios of pesos, we believe that it is difficult to compete against the effective rates accrued by the CER index in these months (110% is the average of the last two months). In any case, we believe that it is prudent to dollarize part of the portfolios in a diversified way between Negotiable Obligations (GNCWO, PTSTO, CSDOO) accruing short-term interest and sovereign bonds in dollars (GD38) taking advantage of the low parities (and high IRR 21%) and the next step up that positions “old indenture” titles with a very attractive current interest rate (11%).
Lucas Yatche is Head of Strategy & Investments and Marcelo Romano Chief Economist at Libre Capital.
Source: Ambito
