Career: Raising the pass rate is key to normalize short-term credit

Last week the BCRA announced an increase in the yield on passive repos to 27%, while it reduced the yield on Liquidity Letters from 38% to 37%. The idea of ​​the monetary entity is that the performance of both instruments of monetary policy converge to eliminate the bills and leave only the repo rate as a reference.

In this regard, the BCRA had said last Thursday that “the increase in the repo rate and the reduction in the holding of Leliq and the alignment of its rate with Treasury instruments will gradually reduce the quasi-fiscal cost of sterilization at the same time which increases its effectiveness in influencing short-term rates of the economy ”.

In this sense, Carreras admitted that the distortions in interest rates affected the evolution of the dollar price, by ensuring that “the higher repo rate will normalize short credit, which encouraged delaying dollar settlements, anticipating imports and accelerated cancellation of external debt ”.

He specified that “the exchange market does not have homogeneous flows in the year” when recalling that “in October and November there is low grain settlement and in January and February there is a high demand for foreign tourism (which will not be present this year)” .

For this reason, Carrera pointed out that “the rise in the repo rate, plus the gradual reduction of the Leliq stock, are two measures that give consistency to the relationship between the depreciation rate, interest rates and inflation.”

In his opinion, the rise in the interest of the repos so that it converges with that of the Leliq “enhances the role of the Leliq for banks to capture time deposits at a minimum rate of 33% (38.6% effective)” . Carreras considered, then, that “by lowering the stock and the Leliq rate, the sustainability of the BCRA’s remunerated liabilities in terms of nominal GDP and in dollars is preserved.”

Meanwhile, he stated that “in the transition this rate hike is associated with the rest of the measures that stimulate supply or regulate demand to moderate the volatility of Reserves.”

From the private sector, the economist Iván Carrino was pessimistic about the effectiveness of the measures. In statements to Ámbito, he considered that “it is not seen that the waters will calm down by lowering the highest interest rate that the BCRA has.” “In fact, it seems to me a decision that is totally the opposite of what should happen. That the repo rates rise is reasonable, since the annual 27% is well below the expected inflation for the next 12 months, but the reduction of 38% (Leliq) does not have any reasonable explanation, “said Carrino.

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