Saturday , January 16 2021

BCRA reinforces its policy before inflationary escalation


In a good romance, what was announced yesterday was that BCRA adjusted the falls of the contractual bias of monetary policy, at least until the end of June. Remember that at midnight on June 22 we will finally know who will be candidates for the PASO presidential race. Also, behind the changes in COPOM (see separately), it seems that it returns to the flotation, but above all, to the gratitude of the peso as an anchor of inflationary expectations. It is worth mentioning that inflation in March showed an interstate level of 54.7%, while the core rose to 55.5% annually.

Therefore, perhaps the most relevant fact is that the BCRA is ready to confirm a larger peso from now until the end of the year. This means that it is ready to accept the true appreciation of the currency, given the expectation that monthly inflation will remain high in order to ease the intense pressure on prices. Of course, this strategy, in order to deflate itself through the "delay" of the exchange rate, has its costs in terms of activity level, in an economy that accurately continues to show not so strong.

Regarding the objectives set by BCRA yesterday, the head of the monetary unit, Guido Sandleris, gave some details of what he expects from now, while acknowledging the reading errors they made from the increase in demand for money since the end of 2018, which contributed to the subsequent inflation jump. On the one hand, Sandleris tried to reduce the unity of the existing fear of a strong dollarization of portfolios in the middle of the electoral process. In this connection, he noted that for BCRA, "dollarization" already happened, happened last year, that is, it was ahead of the election dynamics. He explained that non-residents had already escaped from the peso and that they were valued and that the families accounted for nearly 12% of the total assets in pesos, this extrapolated until 2019 involved a potential flow of $ 7,000 million. Thus, the $ 9.6 billion the Ministry of Finance would sell was more than enough. For the BCRA, families already have 83% of their wealth, a ratio now 93%. That means that what remains to be dollarized is only 7% of the assets, but given that the demand for transactional money is on historical downturns, that 7% will not be valued. In addition, the real private sector has gone from the current account deficit ($ 17,000m in 2018) to have a surplus this year (estimated at $ 5,000m).

In the end, he promised more measures for banks to transfer the reference rate (Leliq) to fixed-price yields. He said "it was the key to the program and to avoid excessive dollarization."


It decided to reduce the rate of updating the limits of the "non-intervention zone" to 0% by the end of the year. This means that the lower and upper limit will remain constant at $ 39,755 and $ 51,448, respectively, until December 31, 2019.

Additionally, if the exchange rate is below the "non-intervention zone", BCRA will not make the purchase of the dollar by June 30 next. In this way, BCRA gives priority to its disinflationary goal and will not increase the monetary base even if the behavior of the foreign exchange market suggests an increase in demand for pesos.

In addition, BCRA maintains the intervention rule for the quarter, if the exchange rate is above the "non-intervention zone". In this case, in order to maximize the impact on liquidity, bids will be made up to US $ 150 million per day, the maximum amount foreseen in the monetary scheme and the monetary base will be reduced by the said sale.

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