The Board of Directors of the Central Bank must decide this Thursday whether, after six months to keep it unchangedcome back upstairs monetary policy rate, today fixed at 107% of annual cash flow. While yields still outpace inflation, the price increase in the first quarter of the year is behind it.
Before INDEC released its February CPI, which reported core inflation of 7.7% and a sharp jump in food prices, the organization headed by Miguel Pesce was reluctant to make any new adjustments which, while improving the attractiveness of peso instruments, especially bank placements with fixed term placements, have a strong impact on the level of activity.
In the recent deal with the Fund, in which the agency agreed to make targets more flexible due to the impact of the drought, the need to keep “positive real interest rates” was put back on the table. Although with 102.5% year-over-year inflation the actual return on making a fixed term looks slimmer, over the past twelve months, for now, the rate still manages to beat inflation.
Admittedly, the one that made a fixed term last month lost against rising prices in the economy: the monthly yield to deposit the money in the bank remained at 6.25%, while prices rose to 6.6%. Something that hasn’t happened since last September, when the Central decided to raise the rate by 550 basis points, from 69.5% to 75% nominal per annum.
Nery Persichini, of GMA Capital, pointed out: “It would not be surprising if the BCRA lifts rates. The core CPI jumped 7.7%, the highest jump since INDEC normalization. As color data, taking the fixed term rate (BADLAR), February had the lowest real rate since August with a -9.2% TNA.”
Lorraine GeorgeEmpiria economist, noted that there are already signals in the market that a Leliq rate hike is the next logical step for Central to take. “The BCRA’s latest monetary policy rate hikes occurred after an earlier Treasury rate hike. Finance validated higher rates on the short tranche of the LEDES for three tenders,” he explained.
At the same time, he specified: “Today, bills of less than three months pay annual effective rates of 119%, against a Leliq rate of 107.3%. And the BCRA’s monetary policy benchmark rate is very close to the rate of one-day reverse repurchase agreements (TNA of 75% vs. 72%).This calls for shortening the terms of BCRA liabilities”. For all this, he specifies that an adjustment of the reference rate of between 200 and 300 basis points is to be expected.
For his part, Juan Pablo Albornozof Inveq, stressed that the BCRA is not using the rate as an anti-inflationary tool, but rather to maintain the delicate balance between rising prices and dollar stability.
“Whether or not the BCRA’s decision to move the monetary policy rate (and also the fixed-term minimum rates) it was based solely on inflationary arguments (it is not, but for example), the Central Bank still has reasons not to raise it. The monetary policy rate yields 107% TE, is still above past inflation (will give 100-odd a year now when the CPI comes out) and more importantly, is still above what is wait for REM. “, he said.
“Using the rate in Argentina is primarily trying to curb the dollar. If I raise the rate, maybe you’ll look more fondly at investing in pesos rather than buying dollars,” he explained, noting that while “the nominality is going out of control”, the exchange of perspectives “seems more and more complicated”.
“Although the rate is a couple of basis points above REM inflation expectations, not moving the rate with the inflationary acceleration we are seeing and the deteriorating exchange rate environment could be a misstep,” he said. Albornoz, although at the same time he warned: “Trying to put the cold cloth on the dollar and on prices by paying a higher rate may have ephemeral success in the very short term, but without the fiscal correction, the only thing that guarantees is a (quasi-fiscal) problem in the future.”
Source: Clarin
