The objective of the government is to accumulate reservations via debt placement, sustain exchange stability and deepen the disinflation process until October.
Beyond the good results in inflationary matters, the focus is to increase international reserves to achieve the objectives agreed with the IMF, simultaneously guaranteeing a stable exchange scheme that consolidates the pricing. In the short term, the main trace-off of the current administration is raised between the disinflation and the accumulation of currencies in the BCRA.
In the first weeks after the lifting of the stocks, the policy prioritized the reduction of inflation, although both the IMF and the financial markets demand a strengthening of the reserves. The fund, because the level of net reserves is approximately US $ 4,000 million below the agreed goals; And the market, because The country risk – above 600 basic points – reflects not only political risk, but also the breach of expectations regarding the purchase of dollars during the high liquidation season. For this reason, it seeks to increase reserves through alternative mechanisms to direct currency purchases, by issuing weights within the bands planned in the current program.
The BCRA and the Ministry of Economy announced a package of measures aimed at strengthening the level of reservations -including the tender of public titles subscribable in dollars and the placement of RES with international banks -already consolidate the control of monetary aggregates -with measures such as the repurchase of puts on treasury titles, the new series of the Bopreal bank lace-. In simple terms, The objective is to accumulate reservations via debt placement, sustain exchange stability and deepen the disinflation process until October.
It seeks to enhance the financing scheme in pesos through the entry of dollars, following the logic applied in the recent tender of Bonte 2030. The instrument menu that the National Treasury will offer will be wide and include bonds to a fixed rate, adjusted by CER, Tamar, dollar Linked and Hard Dollar, all with maturities higher than the year. Likewise, the elimination of mandatory six -month parking for non -resident investors improves the liquidity of the instruments and makes them more attractive to funds from abroad, although it also exposes the market to greater exchange volatility in the face of possible rapid capital exit movements.
Reservations: Bounded risk strategy that could be increased
So far, the risk associated with the entry of external capitals seems limited: Bond holdings in pesos by non -residents barely reach US $ 1,700 million (estimates to May), well below the US $25,000 million that had reached in December 2017, before the Macri management crisis. Nevertheless, If the dollars program is maintained at a rate of US $ 1 billion per month, in seven months the stock in foreign hands could multiplyincreasing exposure to external shocks or speculative movements that press the exchange gap. The strategic objective is to channel financial dollars – both local investors and international investors – towards treasure financing, at the same time strengthening the reserves of the Central Bank without direct intervention in the exchange market. To this is added the recent Repo operation for US $ 2,000 million, which will increase the level of liquid reserves of the BCRA.
On the monetary level, the BCRA continues to disarm contingent liabilitiesadvancing with the total elimination of the puts on Treasury bonds -instrument inherited from the previous management -that functioned as liquidity insurance for the banks. Its elimination represents a relevant step in the sanitation of the balance of the Central Bank and in the strengthening of the new monetary regime based on aggregates. Likewise, as of July 10, Lefi will cease to be issued, which will be replaced by Lecaps with price in the secondary market, thus consolidating a regime based exclusively on the control of monetary aggregates, without explicit reference rate.
In short, The accumulation of reserves is accelerated as a necessary condition to sustain exchange stability and meet the goals agreed with the IMF. Currently, net reserves continue approximately $ 4,000 million below the established, which forces to deploy short -term measures, such as international rests and bond placements in pesos signed in dollars (up to US $ 1 billion per month). Complying with the program agreed with the Fund is not only relevant to avoid financial tensions, but also acts as an anchor of expectations for the market. The recomposition of the stock of reserves contributes to the reduction of the country risk, which still remains above the 600 basic points. The great challenge is to achieve this balance without reactivating inflationary pressures or generating financial instability. The road map is delineated: in this scenario, disinflation constitutes the main asset.
Professor of the University of CEMA
Source: Ambito
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