The Central Bank has raised rates, but this is not enough.
While these days he finishes defining Sergio Massa’s economic program, in his first “complete” week of management, the new economic team has advanced with two measures which sought to clear the horizon in the foreign exchange market and ensure an adequate level of financing of spending in the debt market.
In addition to a debt swap and a new Treasury auction, a test for Massa in the market successfully passed, the Central Bank cleared last week the most aggressive rate hike it has faced in the past three years. Analysts say these strategies will be able to decompress the picture in the short term, but they will only catch up postpone the most complicated moments of the crisis for later.
The “financial cost” of both measures worries City economists, who see more pressure in the medium term. On the one hand, for Esteban Domeq, of Invecq, the increase in the BCRA rate is a “delayed response”, which still keeps the agency’s bond yields below inflation and therefore “It doesn’t work as an aggressive enough signal.”
“This leads to an increase in the Central Bank’s quasi-fiscal deficit with little ability to align expectations and with increasing certainty of future issuances,” he said.
“Not accompanied by a truly rational fiscal policy, simply by raising interest rates it sets a limit on future inflation without correcting any of the underlying problems. If in the last two years the economy has already suffered the inflationary consequences of doubling the monetary base, knowing that from now on for every peso invested in Leliq, the Central Bank will have to pay back about twice as much is not encouraging, “he said. the Economist.
Along the same lines, Nery Persichini, of GMA Capital, underlined: “The interest accrued on the remunerated liabilities will accelerate, putting pressure on the quasi-fiscal result”. According to his calculations, at the end of 2021, with a Leliq rate of 38% TNA and a repo rate of 32% TNA, the interest on these Central Bank liabilities reached 53% of the monetary base and 2.5% of GDP. But this year this bill has become more expensive.
Persichini pointed out: “Given Leliq’s current assets and subscriptions, of $ 6.82 billion, and the level of fees, the near-tax cost accrued per year would reach $ 6.55 billion or 48.8 billion. dollars (more than the total amount agreed with the IMF), and would represent 1.5 times today’s monetary base and 8.4% of GDP“.
In a Delphos report, analysts at the consultancy warned that this “orthodox” approach in terms of interest rates will have “Opposite effects on the fiscal and quasi-fiscal deficit”.
At the same time, Delphos recognized that this scheme can keep financial exchange rates in check in the short term, but not anchor inflationary expectations and it keeps the chances of a change in the exchange rate high.
Rightlythe biggest uncertainty in the market is how the Central Bank will manage the foreign exchange marketin a context of constant decline in reserves.
FMyA’s Fernando Marull said: “The hike in interest rates should bring some calm to the parallel dollar, but this does not lower current expectations of devaluation of the official dollar as the BCRA continues without taking vigorous measures to restore the imbalanceneither in the dollar price (devaluation or fractionation) nor anything to get more reserves “.
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Ana Chiara Pedotti
Source: Clarin
