To neutralize the huge amount of pesos issued to avoid a flight to the dollar and greater inflationary pressures, the government has developed a complex and very difficult to disarm device. The major effort falls on the Central Bank and could be summarized as follows. The entity’s debt stock (between Leliq and repo) amounts to $ 8.6 trillion, which implies a monthly interest expense of $ 577,000 million.
With an annualized effective rate of 107%, the Plant achieved a first objective: the blue dollar fell to $ 277 reducing the gap with financial dollars below 100%. Fixed-term deposits in pesos have also increased (10% in September), but they are not free. “At this rate, the BCRA will double its liabilities ahead of next year’s elections,” said Gustavo Neffa, of Research por Traders consultancy.
The main problem, specialists warn, is financing the fiscal deficit with more pesos, which generates inflation. The Central then issues money at the request of the Treasury and withdraws a part of it by placing debt on the market. It’s not like circulating money, because you have to pay back principal plus interest, which makes the debt huge and the crossroads for the economic team.
“In the short term, the Central Bank withdraws liquidity to avoid the surge in inflation. But in the medium term, what happens to the so-called broad monetary base, which includes remunerated liabilities, such as the Leliq, matters more. This variable, which expanded to 50% yoy in May, now it does so to 79%”, Says Jorge Vasconcelos, of Ieral, in his latest reportage. The economist clarifies that for the moment it is possible to support the dynamics, but warns that “the stage is fragile“.
Most connoisseurs rule out an upcoming bull run, although they are concerned about escalating inflation. Nery Persichini, of GMA Capital, points out that this happens despite this the monetary base (currency) increases well below 100% inflation that consultants project. “This is $ 4.2 trillion and in year-to-year terms it is growing by an average of 42%,” she points out.
Does the lowering of the monetary issuance rate imply the lowering of prices? Not necessarily. Furthermore: Sebastián Menescaldi, Eco Go’s chief economist, explains that the “demonetization” of the economy is due to the fact that nobody wants to have pesos precisely because of the constant increase in the cost of living. “So, the pesos go to the dollar or inflation, why people accept any price“, points out. For this, the expert adds that “today the situation is stable but on very slippery ground“.
Economists believe that currency imbalances are severe and that this leads to inflation. However, the majority – including Federico Furiase, from Anker – observe the panorama without much fatalism. “Debt generates restrictions and the monetary base increases by 11 points per month. Inflation in 2020 was around 33% and this year it could be 3-digit. But there is a virtuous way out if you can lower the deficit and accumulate reserves ”, interpreted the specialist. Easier said that done.
Furiase claims that the Central debt is “an endogenous issue for the payment of interest“, But adds that” this imbalance does not imply an exchange risk since the Leliq (liquidity letters) are in the hands of the banks “. He alluded to Lebac, as the tool used by former BCRA chief Federico Sturzenegger to suck pesos was called. Lebac could be bought by anyone.
Andrés Borenstein, of Econviews, points out that the two situations are not comparable either for the volume of debt or for the level of reserves that the Central Bank had in 2018 compared to 2022. “Liabilities remunerated with Sturzenegger exceeded 10% of GDP . They are now under 9%. There was a mountain of Lebac, but with dollars. We don’t have them now, but there are traps and inflation liquefies part of the stock“, He says.
The outlook presents worrying aspects, especially given the acceleration of inflation. Days ago, the head of the Central Bank, Miguel Pesce, predicted a slowdown for next year and placed it at around 60%. “I have seen it very difficult since then the government has run out of anchors and the only tool it has is the interest rate”Said Menescaldi.
According to consultants participating in the Economic Expectations Survey (REM) prepared by the Central Bank, this year will close with inflation of 100.3% and expect a slight decline (90.3%) for 2023. Menescaldi argues that the latest data indicated by INDEC (7%) is a very high floor and represents an annualized inflation of 125%. Even so, the expert excludes the possibility of a hyper, like that of ’89.
Borenstein thinks the same. “Because a hyper is triggered, a trigger is needed and this can come more from the side of politics. From an economic point of viewinflation is a necessity because it liquidates the fiscal deficit“, points out. I’m curious about the current context, even if it has its risks. Borenstein says that if it goes down, the Central Bank should react promptly by lowering a rate that today, in real terms, goes hand in hand with inflation.
The increase in rates implies a greater nominal effort for the payment of interest. Ramiro Castiñeira, of Econometrics, argues that “in April the debt required the payment of 124,000 million dollars and that figure jumped to 577,000 million dollars with the latest increase. This dynamic explains the 3-digit inflation we have today“. Furiase agrees that Central Bank debt “represents two monetary bases hidden under the carpet.”
Ricardo Delgado of Analytica puts it into perspective. “The central debt today of 8.6 billion dollars, in constant pesos, is at an all-time low taking into account the series since 2010,” he concluded.
Source: Clarin
