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The central bank raised the policy rate by 17.5 points in just 15 days: Leliq remained at the 69.5% floor

The Central Bank (BCRA) decided today to raise the economy’s benchmark interest rate by an additional 9.5 basis points -before you know the predictable the acceleration recorded by inflation in the month of July- and left it at its highest level since 10.4 recorded in April 2002 (20 years and 3 months).

It then increased from 60% to 69.5% per annum for liquidity bonds (Leliq) that it places between banks withdrawing part of the pesos that flooded the market in recent years (already announced through Siospel) and will increase from 61% to 69.50% (96.5% annual cash or 5.79% monthly cash) from morning for retail time deposits.

Official statement
Official statement

For the rest of the private sector term deposits, the minimum guaranteed growth rate is set at 61% (and 65.5% in the case of pre-callable UVAs, where holders withdraw before the original maturity date and take advantage of that provision).

In the statement, BCRA admits that “prices accelerated in July in context of the increase in local financial volatility and that it has a negative effect on inflation expectations”, a reason which, he says, led him to “raise the monetary policy rate once again and thus accelerate the normal development of the economy’s effective and passive interest rates to bring them closer to positive ground in real terms.”

In the document, he is confident that this decision will contribute “to reducing inflation expectations for the rest of the year.” and to consolidate financial stability and exchange rate stability achieved after the disruptive events of the past two months that led to BCRA interventions in the secondary market for public securities.

This is their eighth upward correction so far this year, a period in which they started at 37% and 38% annually in nominal terms. But another large-scale implementation in just two weeks, a period in which they increased by an average of 17.5 percentage points, shows the worsening situation. That is no small fact.

The process of updating the fee tier is done more and more frequently and more intensively, as again it turns out that the local economy entered another dangerous level of nominal value that the currency was always running “from behind”, something that helped to strengthen the denial of the peso as a savings currency. At the same time, it fueled the currency rush that pushed the free dollar price well above $300 weeks ago and, by pushing the gap even higher, put further pressure on the weak bond position.

This is something that the Fernández administration’s new economic administration intends to correct, contributing to increases in interest rates that triple the level of correction that BCRA had been doing until now, to try to remove from the market liquidity that could be called “idle”. Once a new level is reached, the monetary authority would begin to encourage starting in September (when the demand for foreign currency also decreases to pay for energy purchases) to start changing the exchange rate of the króna faster than inflation, but less than those that have interest in pesos.

The new values
The new values

After keeping interest rates frozen for more than 20 months, BCRA not coincidentally started an adjustment process at the beginning of January, when it raised them from 37 and 38%, with fixed terms and Leliq, to ​​39% and 40%. It then repeated these adjustments (which went from 2% to 2.5% at a time) every month until the system changed in mid-June, forcing banks to pay for peso deposits that reach one point more than for the Leliq they hold . been acquiring for many years to reward them.

The increase decided today is about 3.5 points on average above the estimates made until yesterday in the market. “It shows that the official decision is to stabilize the market by appeasing the money drought”assessed economist Ricardo Delgado, from Analytica.

And it increases in the same proportion as the set of so-called effective interest rates, which are nothing more than those that banks charge for the financing they provide (see table). According to the new values ​​distributed, the banks will apply 71.5% per annum for consumer balances with credit cards seeking to finance (they were at 62% per annum) or 69% for payment cards. loans they provide to companies as part of the production line.

This last data is part of an inductive to try to prevent those who have export products to go bankrupt from continuing to delay sales.

The increase will trigger the cost of BCRA’s enormous debt, which borders the $7 trillion deficit and just last month raised monthly maintenance costs by 43%, from $183.6 billion in June to $263.12 billion in July.

“In 2022, BCRA went from paying annual interest for Leliq for 1.1% of GDP (TNA 38%) to 7.3% (TNA 69.5%). Only on existing stocks, the new rates would accumulate annual interest for 5.7 billion dollars or 42,500 million US dollars (almost a loan from the IMF)”, said economist Nery Persichini, from GMA Capital.

From then on, with the economy back on track and inflation soaring, he agreed to order hikes of 8 and 9.5 basis points in benchmark interest rates in just 15 days. It will reach?

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