Monday , November 23 2020

The central bank's interest rate accelerates the decline and approaches the level before the last exchange rate

The interest rate on the central bank's liquidity bills Ten points were reduced in the last month. The economic situation in a currency market stunned by the introduction of dollars from abroad and the best economic climate for Argentina was the signals the monetary authority needed to begin accelerating the cut in Leliq's performance. This rate has already penetrated 50% and is approaching the level it had at the end of August before the last major round against the currency.

The bidding of this debt instrument negotiated exclusively by the central bank with financial entities this Wednesday resulted in an average yield of 48.80%, more than a point lower than the value it had a day before. In this way, the reference rate for the Argentine economy dropped by only five points in February.

The gradual reduction of this rate is the news that companies, primarily SMEs, expect to be able to regain access to credit and return to move the productive activity until today frozen. The rate at which they can be funded, which is more the current account development, remains high, at around 57%, but decreased by four points in a few weeks, according to BCRA data.

And it is especially the data that they observe with special attention from the Ministry of Finance. While monetary policy is accelerating its downward trend, the pulse of economic recovery will mark it the cost of money for SMEs and in another aspect the access that consumers may have to personal loans and credit card financing.

Personal loans, often for consumption, cost 63% while the funding rate is estimated to be Credit card is still about 130%, always on an annual basis.

The fact that the entity led by Guido Sandleris pays less to financial institutions for Leliq locations caused these banks to re-enter Pay less rate to the fixed terms. Currently, the yield of 30-day deposits is about 40%, approx. 10 percentage points less than in October when the new monetary regime began.

The Government will try to maintain the balance between the positive real interest rate – which exceeds inflation – given the fixed terms and a continuing decline in Leliq's dividend. A very sharp drop in the profitability of deposits could do Renew the demand for the exchange rate.

The increase in interest rates was the price the government chose to pay for counteract the race against the dollar which began in late April and had its last episode in the last days of August. On this occasion, the currency was more than $ 41 and forced Casa Rosada to quickly seek another deal with the International Monetary Fund to secure the supply of dollars in cash outflows.

In fact, monetary policy is already at levels close to the last episode of stampede against the peso. On August 29, the then president of the central bank, Luis Caputo, decided to raise interest rates from weights from 45% to 60%, with the commitment to maintain it at this level until December. After this period, the Leliq rate began to fall slowly until it began a steeper slope in the second half of January.

In the coming days, if the trend continues, the BCRA may then return to the interest rate that governed the Argentine economy before the last devaluation that laid the ground for the current recession.

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