In a scenario where inflation in May would be around 5%, according to estimates by private consulting firms, which would show a deceleration compared to the 8% in April, but there is more volatility in the Dolar blue and financial currencies, so Doubts prevail in the market about whether the Central Bank will lower the monetary policy rate again in the short term.
And parallel dollars recently showed an escalation that led the blue to reach a peak of $1,300 and the CCL threatened to flirt with that value. And analysts considered that one of the main causes of this spike was the latest rate drop.
The monetary entity lowered the rate on May 14 when it cut it by 10 percentage points and placed it at 40% nominal annual rate (TNA), which is equivalent to 3.3% of the Monthly Effective Rate (TEM). It was the sixth casualty since Milei took office.. And after this measure, the banks reduced the profitability of traditional fixed terms, which currently remain in a range of between 28% and 34% of TNA, according to the entity, that is, a yield of between 2.3% and 2.3%. .6% monthly.
Interest rate and inflation: the Government’s strategy
He BCRA moved quickly with the policy of cutting the monetary rate, which is the one that governs bank repos because seeks to liquefy its stock of paid liabilities, and thus clean up the balance, which is one of the four requirements that the Minister of Economy Luis Caputo mentioned in order to open the stocks. At the same time, this reduction in rates, along with other measures adopted by the Central Bank, seeks to encourage participation in Treasury debt tenders. To this end, the Treasury also offered short-term LECAPs in the last two auctions with a minimum monthly rate of 4.2%, higher than the 3.3% monthly yield that banks obtain for repos.
“The accelerated decline in interest rates was the main factor in the rise in financial dollars, followed by the political uncertainty generated by the obstacles to the approval of laws promoted by the executive.“said the economist Joaquin Marquedirector of UG Valores.
And he maintains that “the anchors of the economic model continue to be the fiscal surplus, accumulation of reserves and a continuous low inflation. Any setback in them will have an immediate political effect and society and economic agents will begin to doubt the viability of the chosen course.”
The Economist Gabriel Caamano explained that “The objective is for liquidity to flow from the BCRA to the Treasury and that causes the stock of repos to fall, and for the rate to begin to be set by the Treasury and not the BCRA.”
They anticipate that the BCRA could lower the rate in mid-June to continue liquefying its remunerated liabilities
“The idea is that it is the Treasury that begins to manage the rate with LECAPs tenders. And the goal is being achieved“, highlighted the economist. And in the last Treasury debt tender in May, it placed $3.52 billion in LECAPs, which was the amount it had stipulated, although it received offers for $16.7 billion.
In tune, the economist Maximiliano Ramirezfrom the consulting firm Suramericana Visión, referred to the LECAPs biweekly bidding schedule and asserted that “The implementation of this scheme not only seeks to accelerate the replacement of BCRA debt with Treasury debt, but also seeks to have banks define the rate of fixed-term and remunerated accounts taking as a reference the LECAPs rate and leaving aside the monetary policy rate, which is that of passive repos”.And he stressed that this was the message that Caputo recently conveyed at a meeting organized by the IAEF.
In this framework, a report from the consulting firm Balance indicated that “the stock of paid liabilities went from representing 5.7% of GDP at the end of April to 3.5% in May.” And the BCRA “strongly reduced the endogenous issuance for interest payments on its remunerated liabilities, from 8% of the expanded monetary base in November 2023 to 1.9% in May.”
Interest rate: will the Central Bank lower it again if inflation falls?
Analysts point out that the pace of rate cuts was dictated by the decline in inflation. But now they believe that risks of tension with alternative dollars must also be avoided.
In that sense, Nery Persichinichief strategist at GMA Capital predicts that ““We could see a respite in the path of lowering monetary policy rates, especially after the reaction we observed in the financial exchange rate”And he considered that “the market seems to have put a limit on the successful trial and error experiment that involved cutting rates from 133% to 40% in 6 months without exchange tensions.”
Furthermore, the expert maintained that “the inflation figure for May, which could be around 5% monthly due to the suspension of rate corrections and the decline in prepaid payments, would be a ‘seagull that would not make a summer,'” but he stated that “The most important reaction, upward or downward, to reflect changes in expectations and flows should be found in Lecap’s short rates.”
Analysts believe that if May inflation is close to 5%, a new rate cut is likely
In tune, Juan Truffa, director of Outlier, believes the BCRA is going to leave the rate “still for the moment.” And he said: “There is still no room to continue lowering the rate. Perhaps you can wait for one more tender on the calendar that was imposed every 15 days – the next one is on June 12 – so that you can rest assured that there will not be again “Movements in financial dollars as happened in the other tender where a drop in rates and a lot of movement from bank liquidity ended up generating an increase in dollars.”
According to his vision, “after this second tender, we will be more above the inflation data for May – the INDEC will publish it on June 13 – so depending on how the number comes, perhaps they will only see the rate lower there.” “. And he noted that “if it is below 5% I don’t see any reason why they wouldn’t want to move forward with a reduction (of the rate), especially because lifting the stocks would still seem to be a little far away.”
The Economist Federico Glustein agreed that “By mid-June, when the LECAPs (shorts that were placed in the last Treasury debt tender) expire and May inflation has been announced, it is likely that there could be some change with the rate,” although he believes that “it would not be convenient to avoid overheating the exchange rate scenario.”
For Pablo Repetto, head of Research at Aurum Valores, the Central Bank “should not lower the rate because there is still a long way to go before inflation is at logical levels.” In addition, he warned that if there is another reduction, “the fixed-term rate will also go down and there is a risk of further dollar increases.” However, the economist estimated that ““At some point in June they are going to lower it if inflation is good for them,” and he emphasized: “I would hope that they do not go mambo and that they do not lower it more than 5 points.”
At the same time, Ramirez speculated given that there is “a repo rate that is at 3.3% and decreasing inflation, we have a projection for May that is around 5.2%, that will surely lead to the BCRA again touch the rate.
“After a few days of rise, alternative dollars stabilized again. With possible good inflation data, this possibility of lowering the rate has a high chance in the coming weeks. What I see is a drop of around 10 points, which would place it at 30%, which would imply that the monthly fixed rate would be 2.5%. It would be just above the crawling that the Government established at 2%. And there she should no longer have any more room to continue lowering it,” she said.
Analysts warn that a new rate cut would be risky and could overheat free dollars
Rate: with an eye on dollars
Ramiro Tosi, former Undersecretary of Financing in the administration of Martín Guzmán in Economy, warned that “lowering the policy rate again is already more risky and can give a lot of instability to the exchange rate gap.” And he evaluated: “Today the rate is 3.2% with an inflation that would be close to 5% in May, so it seems to me that in the margin They can go down but much less than before. Maybe 40% to 35%, which would leave a monthly rate of 2.9%. And again the Treasury would have to pay a higher rate to continue with the migration.”
In this context, the former official maintained that “The problem then is that the banks transfer the spread to the fixed term, and if they lower the rate below 30%, many may prefer to dollarize and not stay in pesos“. Thus, he judged that “the rate has already dropped quite a bit and as long as inflation is not stabilized below 3.5/4%, it would be prudent in that. Especially because there are pending adjustments to rates, fuel, etc. that will make it difficult to lower it even further and converge to 2/3% per month,” he argued.
At the same time, Juan Manuel Francochief economist of the SBS group, judged that “The BCRA will continue to lower rates, although perhaps the next drop will be done by looking closely at the exchange rate dynamics in a context in which total export settlements fall.“And a drop in the settlement flow can put upward pressure on the value of the CCL due to a lower supply of foreign currency in that segment through the blend dollar.
From the same perspective, the financial analyst Gustavo Ber He stated that “based on the success with which the objective of accelerated migration of repos to the Treasury is already being achieved, to avoid risks, one could be inclined for now to wait for signs of a greater slowdown in inflation.” And he predicted that “The main risk of a rate cut that inconveniences economic agents could be another rearrangement of financial and free dollars.” that could rapidly widen the gap, and in the end have a negative effect on prices.
For Ber, “if a dynamic of greater disinflation is validated soon, the monetary policy rate could be reduced again later, but not beyond the order of 2.5% monthly, since there must be a premium for placements in pesos .
In addition, Andrés Reschini, F2 Soluciones Financieras analyst pointed out that “if inflation drops to 5% the rate would have to go down again so that the blender does not lose efficiency” but warned that “the issue is the risk that is run in the event of a possible rise in financial dollars if the expected inflation does not decrease in proportion”.
