Financial tension: Guzmán has suspended a trip to Canada and the Central Bank would raise rates

The government is preparing a series of measures to face a key week in the markets. The mission is to restore confidence and sustain the value of the pesos bonds once they are reached lose 10% in one day last week. The tremor in the city coincided with the rise of the blue and the dollar CCL, which moved from $ 210 to $ 227, while country risk remained high at 2,044 points bases.

The shock surprised Economy Minister Martín Guzmán in the midst of preparations to attend the world’s largest mining summit in Toronto, a trip that was canceled at the last minute. The official explanation is that it was due to technical problems. The truth is the next few hours it will be decisive and Guzmán will be in Buenos Aires to neutralize fears of a default, which those around him attribute to an opposition operetta.

Despite the intervention of the Central Bank, between Thursday and Friday there are 142,000 million dollars left that have been entered inflation-adjusted securities (REC). Of that total, $ 65,000 million was saved on Friday, half by decision of the financial entities’ clients. They were funds of individuals and companies, placed between one and two days, which would pass to the purchase of goods, the payment of taxes and wages and the financial dollar.

United by fear, Guzmán and the head of the central bank, Miguel Pesce, monitor the improvised emergency plan on Thursday. They agreed that the Central will continue to buy bonds until the situation stabilizes. The instruction they downloaded is “Don’t let the peso market default”. The $ 90 billion buy orders on Friday put a cap on 2022 bond prices, but that wasn’t enough.

Pesce will have to send a strong signal. Everything indicates that interest rates will rise, a decision the board will consider on Thursday once May inflation is known. INDEC will broadcast it on Tuesday and it could be around 5%. The BCRA has already raised the benchmark rate five times to reach nominal 49% per annum, equivalent to an effective rate of 61.7%, which is still below the market’s predicted 72% per annum inflation rate.

In the city, they believe the rate it should go up by at least 10 points percentages to catch up with inflation, revive the demand for banknotes and allay mistrust. On the contrary, the tensions on the debt in pesos (70% is in the CER) could expose the government to a re-profiling (suspension of payments) – like the one made by Hernán Lacunza in August 2019 – well before the elections, and at the same time accelerate the rise in dollars.

Today, the pesos debt is the main source of financing of the budget deficit. The Treasury will offer this Tuesday a menu of short bonds, which expire this year. The contract is “symbolic” as only $ 11 billion is expected, but it will be a test case for the more than $ 500 billion that will have to be renewed later this month. For example, the Letter with CER (Lecer) in December closed on Friday with a rate of 8.9% above inflation. Will Guzmán pay more for the loans?

For the moment, the banks are closely following in their footsteps. It is no less: they have Leliq, CER bonds and dollar-indexed securities in their assets. Some believe that the expulsion of Matías Kulfas left Guzmán and Pesce tied up. “There is not much to do, you have to make unpleasant decisions: raise the rate, devalue and lower spendingthey know, but the government has already knelt in front of the lady, “they warn in a frontline entity.

In other banks, however, they believe that the latest measures have normalized the scenario and see positive that the disarmament has not been triggered by private investors for fear that the Treasury will not renew the maturities of the debts, but rather to the bailout of the Pellegrini fund from Banco Nación to make payments. They see it as a short-term solution. The problem is that the measures also come with a cost.

Purchases of Central Bank bonds involve an injection of pesos into the market which must be absorbed with a larger Leliq issue so that it does not affect inflation or the CCL. If the BCRA raises the interest rate this Thursday, you will have to pay more interest for the Leliq, increasing the quasi-fiscal deficit. And finally, if the rate gets too high, Guzmán would be forced to pay a higher cost to catch pesos and compete with the Fish stocks.