In the midst of the new rise in financial dollars, which yesterday exceeded $1,200 in all versions, the Government suggested that banks raise the fixed-term rate. The manager was Luis Caputo, by explaining the changes in monetary policy that they have been carrying out.
The Minister of Economy passed that message at the meeting with the IAEF on Tuesday, where nearly 1,000 finance executives participated. In his presentation, he explained that the transfer of banks’ liquidity from remunerated liabilities of the Central Bank to bonds issued by the Treasury is in full process.
“In the last tender we set the rate of the securities higher than the Central Bank’s monetary policy rate, which in the end will be almost testimonial,” said Caputo. Last week the BCRA defined another aggressive rate reduction, from 50% to 40% annually, which led to a sharp reduction in the yield of the fixed terms paid by banks.
However, a few hours later, the Treasury went out to place bonds and paid an annual rate close to 48%. The response was immediate: banks switched en masse to bonds and subscribed more than $11 trillion, with the aim of achieving a higher yield.
“Banks should now have the Treasury rate as a reference and no longer the Central rate to define their policies,” said Caputo.
It was an elegant way of suggesting an increase in the rates paid to savers, taking into account that they can now place the Treasury at higher levels. An improvement in yields in pesos would be essential to curb the exchange rate pressure of the last week.
Banks drastically reduced the fixed-term rate last week, which would be directly related to the more than 20% rise that the dollar had so far in May.
Most entities defined rates of 30% annually (around 2.5% per month) or even lower. These are levels that lose against inflation, taking into account that the April index was 8.8% and the May index would be close to 5%. But even more worrying for savers is that they also fell well short of the rise in the dollar, thus erasing part of the gains of recent months.
The BCRA is in the process of reducing remunerated liabilities and now banks increasingly place their surplus pesos in bonds issued by the Treasury, which pay 8 points more in interest. For this reason, Economy insists that entities have room to increase the performance of their fixed terms and attract investments in pesos.
Considering that now most of the entities’ liquid funds will end up invested in bonds issued by the Treasury, which pay 48% annually, the fixed-term rate could easily return to levels of 40%. This has not happened yet, but as the drain from pesos to dollars continues, a gradual adjustment in yields may possibly be seen.
A central part of the emergency economic plan consisted in these first months of the year of liquidating the Central Bank’s paid liabilities. This required successive sharp reductions in rates, which remained at very negative levels in relation to inflation.
Such a policy is only possible with an exchange rate. With negative rates, exchange restrictions (especially in the case of companies) are key to preventing the dollarization process from accelerating when the rate is not attractive enough to remain in local currency.
For this reason, Caputo himself acknowledged that “there is no date” for the release of the stocks. The most complex thing is the recomposition of net reserves, which are only now emerging from negative territory. The Minister of Economy indicated that the agreement with the IMF and the possibility of receiving fresh funds from the organization will be key to accelerate the process.
