With the US$140 million that the Central Bank bought this Tuesday, it totaled US$1,671 million in March, when the last financial day of the month still remains. This implies that, to acquire foreign currency, the entity chaired by Santiago Bausili issued $2.3 billion to the market.
That figure is equivalent to 3.7% of private transactional M2 -which includes circulating pesos, deposits in checking accounts and in savings accounts-. However, the government denies that it has switched to a monetary expansion policy nor, much less, that he is doing “Keynesianism” to stimulate economic activity.
Quite the contrary, it maintains that it maintains its contractionary bias and that its recent measure of cutting reserve requirements for banks should not be confused as an attempt to increase liquidity to promote consumption.
In his debut as director of the BCRA, Martin Vauthierone of the musketeers of the “three anchors plan”, argued that this drop in lace “It did not imply any monetary expansion, since the banks used those pesos to acquire new, longer-term bonds on a voluntary basis.”
And, indeed, the last Treasury tender absorbed market pesos in a figure that practically coincides with the liquidity recovered by the banks: $3 trillion. Last Friday, debt securities matured by $8 billion, but the minister Toto Caputo and the Secretary of Finance, Federico Furiasewere not content with “rolling up” the debt but also placed bonds until they reached $11 billion.
That is, they took a surplus of $3 billion from the market, a figure almost four times higher than what they had absorbed in the previous tender.
How is this interpreted?: according to Eric Ritondalechief economist of the Puente stock market firm, “validates that system liquidity is sufficient to ensure net financing and maintain a contractionary bias, even extending maturities towards 2028.”
Along the same lines, the economist Mariano Flores Vidal He highlighted that, with the drop in reserve requirements, it could have happened that banks preferred to increase liquidity and reduce their demand for new Treasury securities, but that did not happen.
and the Outlier consulting analyzes that, with this tender, everything that the Central had been taking in “repo” operations during the last weeks is contracted. “It seems that the objective of removing pesos from the market and doing everything possible to support rates, while keeping the exchange rate under control, is still alive. There, clearly, the idea that the dynamics of the exchange rate helps to discipline local and external inflationary pressures is also still alive,” points out the consulting firm directed by Gabriel Caamano.
Close the weight tap
The truth is that the amount of money – whatever monetary aggregate is chosen to make the calculation – had a reduction in real terms during March. So, Transactional M2 increased by just 1.4% nominallywhile pure transactional money – it does not include savings accounts – decreased by 1.5%.
On the one hand, this situation is not surprising, given the definition taken by Toto Caputo of accommodating the money supply to public demand. The phrase that the minister pronounced before an audience of finance executives continues to resonate: “I can’t force people to have pesos in their pockets if they don’t want them.”
In this way, he implied that the contractionary philosophy will continue, even though there are analysts who argue that this policy will aggravate the sectoral recession of the industry and that it will contribute to overvaluing the peso just when the rest of the regional currencies are devalued to regain competitiveness.
What is clear is that, at this moment, the government wants prioritize the fight against inflation. And in March, as in February, there was pressure caused by public service rates and regulated prices, in addition to seasonal increases.
To put it in Caputo’s own words, “the process of recomposition of relative prices” continues. A process that, according to private consulting firms, will cause the March CPI to be around 3%.
What about rates
But, on the other hand, there were those who interpreted that the relaxation in the BCRA’s tough reserve policy policy was motivated due to the cooling of credit and the increase in delinquencies.
According to an estimate of the investment fund manager Mega QM, In March the total volume of loans in pesos grew just 0.8%which implies that it would already be in a real reduction trend.
The government’s argument is that its policy is virtuous because it causes interest rates to fall while reducing the money supply. In general, both indicators run in opposite directions: the rate is raised when you want to demonetize the economy.
What explains this situation? There, not everyone agrees: there are those who see it as a reflection of the market confidence on exchange rate policy. From this point of view, investors are content with decreasing rates in pesos because they believe that the exchange rate will not fluctuate upwards. Quite the contrary, there is an expectation that, with the liquidation of the agricultural harvest, starting in April the BCRA “will have dollars coming out of its ears,” according to the president’s expressive definition. Javier Milei.
Others, however, do not share this optimism and highlight the fact that the drop in interest rates is occurring in deposits – the “passive rates”, in financial jargon. but it is difficult to transfer it to the cost of credits –”active rate”-.
Put in numbers, if a person takes money to a bank to place it in a fixed term, they can obtain an annual rate of 29%, but if they request a personal loan from a first-rate bank, the nominal rates can exceed 100%. And, when taxes and administrative fees are added, the total financial cost can exceed 250%.
Those who support this situation remember that banks need to widen their spread to compensate for losses due to the increase in delinquencies. This could lead to a further rise in lending rates, which would punish good payers to balance bad loan loss forecasts.
An economist’s report Lorenzo Sigaut Gravina Compare the current situation with the management of Mauricio Macri, when a credit boom had also been generated. And the numbers are eloquent: interest payments represent an unprecedented 26.3% of the family budget – it tripled in a year and a half. While in 2018 that ratio did not reach 20%. Regarding late payment, the current level is double than that recorded in the Macrista period.
“Creative accounting”?
But there are those who argue that, in reality, contractionary monetary policy has some components of “creative accounting.” The critics’ argument is that BCRA liabilities – liquidity in pesos – are exchanged for Treasury obligations, which are capitalized month by month.
This point is what causes every time the fiscal result figures are published, the old debate is reheated about whether the interest on the Lecap – which is not paid but is accumulated in the future – should or should not be accounted for when calculating the financial result.
On the other hand, there is a classic criticism: the BCRA claims that it only issues to buy dollars, but as those dollars go quickly, the weights they are spinning in the market. That would break the argument of “support” of the monetary base with reserves.
In fact, during March the Central Bank, despite having purchased US$1,503 million, decreased its reserves by US$2,000 million to settle obligations. Those who criticize the official policy affirm that, in reality, the monetary austerity proclaimed by the government is not such, but rather It is transferred from the BCRA to the debt accumulated by the Treasury.
In any case, what is certain is that the market continues with low liquidity while interest rates also fall. What is not clear is whether this is proof that the public expects a brake on prices. The last Di Tella University survey on expected inflation gave a result of 33.5% for the next 12 months.
