One of the recurring criticisms for the minister Luis Toto Caputo is that “he fell in love with lower interest rates.” And, after the fourth consecutive rate cut in just a month, Caputo himself would be the last to deny that accusation.
It is no wonder, because, despite all the warnings from economists, the move has been working out well for the minister, at least so far. Proof of this is the surprising growth of fixed-term deposits.
In April, placements grew by 21% real monthly, despite the fact that the rate has already lost practically all its attractiveness. Before the last cut, the rate paid to fixed-term savers did not remunerate more than 3.5%, which not only implied less than half of the CPI but also a level that was diluting the profit measured in dollars. .
That is the point that generated doubts in the market, given that at the beginning of the new policy of lowering rates, the official argument was that depositors would not withdraw their money from the bank because, in reality, what mattered to them was not that the rate was negative in pesos, but it was positive in dollars.
This condition was more than met in February, when fixed-term savers obtained an unprecedented return of 27% in one month -if the blue dollar is taken as a reference-, but it began to fall rapidly as the rate was cut and that the dollar showed a slight upward movement. Thus, in March the profitability had already fallen to 10% and, with the next rate cut, to 3.5%.
For those who have placed money at the beginning of May, the profit in dollars is likely to be zero, given that the blue already advanced 2.9% in the first half of the month. And, for those who put their money in the bank after this new cut – that is, who will receive a rate of just 2.3% – there is even a quite probable risk that the rate will already go into negative territory, measured in blue dollars. .
With the new rate cut, the fixed term runs the risk of having negative income in dollars
The timid return of credit
Even with this liquefaction of deposits, savers are not showing signs of wanting to leave en masse to take refuge in the dollar. And, in parallel, the other movement that excites the government is occurring: a slow return of credit to the private sector.
Despite the recessionary environment, loans to companies remained stable in April compared to the previous month. And in the consumer sector, after a five-month string of decline, there was an increase in credit – 0.9% real monthly. Economists interpret this data as a possible indicator that the collapse in consumption is reaching its floor and has already begun to rebound.
Of course, the issue that generates euphoria in the government is the return of mortgage credit with UVA rates. In terms of volume, it is still little money, and the banks believe that it will take time before it returns to the levels recorded during the Macri administration – when a level of US$600 million granted monthly was reached. But from the political point of view, it is a type of credit with a high symbolic content, because represent confidence in stability long-term economic.
In any case, the question posed in the market remains the same as the first time the Central Bank announced the rate cut: how can savers stay in their placements with a super negative rate, instead of Go out and look for the classic refuge of the dollar? And the answer appears increasingly clear: it is because of the exchange rate.
The validity of exchange controls makes it difficult for savers to find alternatives for allocating liquidity. There is the blue dollar, of course, but most of the fixed-term volume corresponds to high-income companies or individuals, who find it more difficult to engage in this practice than small savers.
And, in any case, The dollar alternative has also lost appeal, given that one of the effects of the stocks – in conjunction with the “blend” exchange rate for exporters – is to keep the dollar anesthetized in the parallel market.
Stock-dependence is reinforced
It is this situation that has led several economists to affirm that the economic model has become “trap-dependent”, to the point that the International Monetary Fund itself no longer shows pressure for a short-term disarmament of controls.
To the president’s irritation Javier Mileicritical economists warn about the double edge of this strategy, among whose risks is an exchange rate delay that can only be corrected with a devaluation jump.
For economists, the disinflationary model only closes with the maintenance of exchange controls
“Seeking to eliminate the quasi-fiscal, lowering rates, slowing the dollar, and encouraging banks to finance the Treasury with PUTs, increases dependence on the stocks,” he argued. Marina Dal Poggettothe director of the consulting firm Eco Go.
While a report from the LCG consulting argues about lowering rates: “We understand that it is the way to continue reducing the amount of pesos that could potentially migrate to dollars in the face of the elimination of the stocks and give more support to the BCRA to raise rates when the time comes. However, promoting the depreciation of the peso will have long-term costs, if the ultimate goal is not dollarization.”
But the government vehemently defends its position, arguing that the rate cut is the pillar that is allowing disinflation, since it neutralizes one of the main factors of monetary expansion: the interest payment that the Bank makes every month. Central for remunerated liabilities -previously the Leliqs, now the 24-hour passes-.
He was eloquent in that sense. Federico FuriaseToto Caputo’s main collaborator in the design of economic policy, who entered into controversy with investors on social networks regarding whether the placement of US$1,709 million in Bopreal bonds was a reason for celebration.
Faced with arguments about the risk of changing fixed-rate debt for the issuance of Bopreal -nominated in dollars- and bonds with CER -which adjust with inflation- was the opposite of cleaning up the public sector’s balance sheet, Furiase responded that The key was the sequence in which decisions were made – an argument that later appeared repeated in the IMF report-.
“Precisely to avoid noise in the real exchange rate and real rates, the BCRA balance will be strengthened as necessary first, maintaining the fiscal and monetary anchor,” said the official, for whom rushing out of the stocks would imply an unnecessary risk.
“They do not see her”
What the market is seeing today is that the government is betting heavily on the strategy that, with low rates, banks will be forced to migrate their liquidity from placements in BCRA repos to the purchase of Treasury debt.
It is a move that generates quite a bit of criticism, but which the government rejects, because it argues that the new debt will be paid with resources from the fiscal surpluswhile liabilities implied continued monetary expansion.
Toto Caputo himself reinforced the argument, commenting on a tweet by the economist Juani Fernandezwhich praised the drastic monetary squeeze via lower rates – which allowed the injection of pesos for interest payments to be reduced.
Minister Caputo retweeted a graph from the consulting firm Econometrica that shows the drop in monetary expansion due to interest payments
“Incredibly there are some colleagues who not only did not understand it when we did it, but who still do not understand it today, even with the benefits in sight. “If we had set a positive real interest rate, we would probably be immersed in a hyperinflationary expectation, it would be impossible to get out of the trap given the additional 40 billion of remunerated liabilities, and to top it off, everyone would be talking about the ‘carry trade'”Toto commented.
The minister validated the data from a graph prepared by Ramiro Castiñeira, director of Econometrica, which indicates that the monthly monetary issue for interest payments – of Leliqs or passive repos – fell from $5.1 billion last October to $1.7 billion in May. Economists who support the monetary cut argue that, in this way, “three monetary bases were saved.”
In any case, the question that the market is asking is whether, with this latest cut that brought the monetary policy rate to 40% annually – 3.3% monthly – the series of declines will come to an impasse or if there will be more news .
The Central Bank, in its argument on the measure, suggests that this trend could continue: “The responsibility of the BCRA to limit the creation of endogenous money is administered through the monetary policy interest rate, constituting a complementary anchor to maintain expectations of inflation on a downward path”.
