After the inflation data, the BCRA again reduced the rate and brought it to 40% per annum.
Following April’s double-digit inflation data, Central Bank (BCRA) On Tuesday the base rate was cut again by another 10 percentage points and remained unchanged. at 40% per annum. As installed Communication “C” 97972 essence, which is “equivalent to 49.15% annual effective rate (TEA)“.
Thus, the monetary regulator is taking another step in its policy to dilute the peso in the economy and promote the placement of treasury debt. In fact, the BCRA statement states that “the decision taken today by the Board of Directors is in line with the announcement of a streamlined program of bi-weekly treasury tenders“and adds that it “aims to construct a benchmark short-term liquidity rate curve for the Treasury, providing confidence in the availability of investment alternatives for capital market participants.”
And that’s what This week, the National Treasury will issue new debt in pesos.Therefore, city analysts note that with this new monthly effective yield of 3.3%, this is in line with the yield of the instruments that the Treasury claimed, given that, as stated economist Federico Glustein“LECAPs operate at an effective rate of 3.4% for one month.”
Likewise, this measure was taken immediately after inflation data for April became known, which was the first one figure in the Mile era and which, according to the National Institute of Statistics and Census (INDEC), was 8.8%, It has thus returned to the levels at the beginning of the fourth quarter of last year after reaching a historical level of 25.5% in December last year as a result of the devaluation carried out by Economy Minister Luis Caputo.
Fixed-term warning: This is the sixth rate cut in five months
After that new rate cutwhich is the sixth carried out by the current BCRA leadership under the command Santiago BausiliIn five months, Banks are expected to begin adjusting yields which they offer to investors for a traditional fixed term and set their nominal annual rate from 30% to 40%.
Actually, some organizations have been discounting this level of rates for several weeks as many offered those who placed 90-day fixed-term bonds a yield of about 40% of the nominal annual rate, well below the prevailing monetary policy rate.
It is worth remembering that on May 2, the monetary authority reduced the monetary policy rate (repo rate) to 50% per annum from the previous 60%, which is a very low level compared to the 133% that Javier Miley received from the previous government administration. . As stated economist Salvador Vitelli from the Romano Group, through your account on the social network X (formerly Twitter), “Over the period of 23 wheels, he reduced the rate from 80% to 40%.”
At the same time, as said, The government is seeking to maintain negative real rates to continue thinning the economy’s peso reserves. and at the same time make the instruments placed by the Treasury more attractive. When the base rate decreases, Treasury debt assets become more interesting.
The government’s goal and what will happen to tariffs
“It’s something that BCRA has been applying since December. Inflation data has been released and the rate is being cut again from what they expect will be another month of slower inflation in May. It is very likely that they want the rate to be equal to the trailing peg rate of 2% per month. along with inflation, and this would be logical in a healthy economy, but in fact today Central can manage this thanks to shares, and otherwise it would not be possible,” he describes Volume economist Christian Buteler.
The analyst notes that those who have a surplus of pesos today are companies because the rest of society has already been dollarized in recent years and has no peace because its purchasing power has declined greatly since December. And he believes that “if the government does not achieve its goal quickly, even with reserves, it will be difficult for it to sustain this path.”
Without a doubt, on the other hand, The current economic team uses the rate as an inflation anchor, seeking to control emissions and quasi-fiscal deficits. which constitute BCRA obligations. According to economist Federico Glustein, this “encourages market participants to believe that the stock will remain in force for some time yet.”
This indicates that there is a very noticeable dynamic at play between stocks and prices. “They can continue to reduce it as long as restrictions on access to the dollar remain in place. because as long as the sliding peg remains at 2% per month, the demand for foreign currency is directed towards the highest exchange rates,” Glustein elaborates. And he expects that if such forward dynamics occur, This could result in rates as high as 25% or 30% per year.