Monday , June 14 2021

The solution is not to keep the Leliq rate increase



At the time of writing this note, Leliq's shares were close to Lebac's level when the foreign exchange crisis of 2018 was released. Then, its share was $ 1.36 trillion, and Leliq's current share is more than trillion. That is, we went back to the starting point.

Honestly, I do not see much difference between Lebak and Lelik. The biggest difference is that Libac can be bought by individuals and Lelić, no. However, the banks buy "Lelik" with the funds of their depositors, so if the one who makes the deposit in a fixed term does not renew at the end of the period, the bank will have to turn around and ask the Central Bank to hand over pesos change of Leliq. In other words, Depositors have indirectly these letters from Central.

The question is, why will the Lelik problem have a different end from Lebak? Let's recall that Lebak was born to offset the monetary expansion that arose from buying dollars that the PCRA had to make in the Treasury. In other words, the Ministry of Finance financed the fiscal deficit with external debt. When he received dollars for placing bonds, he had two options: 1) sold them on the market by reducing the foreign exchange rate and complicating the external sector, or 2) selling them to the Central Bank. BCRA bought them by issuing pesosas that received the state treasury and paid them with salaries, pensions and other such pesos. When these pesos entered circulation, in order to avoid further inflationary pressures, BCRA set Lebac and withdrew the pesos from the market.

Those who did not see a problem at the time claimed that the shares of Lebak had dollars in the reserves of BCRA. In other words, they have increased the stock, but at the same time reserves have increased. What was the problem if the stocks were in the event of an escape?

At the beginning of the year, the Central Bank had around $ 63,000m of gross reserves. If the working hypothesis is that before the reserves were made, the problem would be solved by selling part of the reserves. However, The headquarters raised the interest rate and also sold reserves and could not stop the development. In a hurry he had to join the first agreement with the IMF. The market calmed down in a matter of days and the government had to fight to sign another agreement with the IMF for a larger amount and more expensive targets per month. And he changed a letter for another.

On Oct. 1, when zero-emission policy began, the Leliq rate, which was debited, was 67%. She immediately climbed to 73%, and after a while slowly lowered until the market said: "This carrot rate is not enough to persuade me to stay in the sands." And the exchange rate began again to the point that the rate re-located yesterday at almost 60% and the level of shares of $ 1 trillion.

It is true that those trillion pesos divided by the current exchange rate is a smaller amount of trillions of dollars in Lebac (about $ 20 per unit). The question is that if all the gross reserves that the Head office can use to prevent the growth of the exchange rate, which, in turn, is far from the ceiling for the interchange of interventions by the flotation band. However, be careful that the US $ 68,000m reserves have $ 14,000m in reserves for bank deposits in dollars, another $ 18,000 related to swap with China and some of the dollars that the IMF gave, but they can not be touched without approval. If fines are made, Leliq shares, measured in dollars, must be at the same level as the level of own reserves of the Central Bank.

In any case, with this level of interest rate, even by chance, the debt in Lebac is liquid. The rate of almost 60% is higher than inflation, ie it is a positive rate in real terms and it is not in line with the real sector of the economy. Because once again you have to ask yourself: To whom does the Central borrow funds that he receives at 60% per year? Who can pay such an interest rate in the productive sector?

This is not the way to be relatively calm until October. It is urgent to replace the $ 1.3 billion that BCRA has in non-transferable treasury bills for negotiable government bonds, so that BCRA can sell them on the market and withdraw the turntables. instead of risking to start losing reserves or to continue the brutal increase in Lelik's shares.

If that exchange is made, the government debt does not grow. It's the same action. It is true that the Central will have to pay interest on these bonds, but today conveys the problem of BCRA, which is bound to raise more and more Leliq at a rising rate.

Because from here to the elections we will have to endure a strong recession, at least they do not risk the exchange stability and that the headquarters has double firepower in case it accentuates the race. On the one hand, free access reserves and another $ 1.3 billion in a long-term government bond with which you can pull the pesos from the market.

Surely this is not an ideal solution, but at least you are better prepared to get to October with the tiniest possible tensions on the stock market.

And as the experience is that the problem with the current Lelik and before Lebak is because it did not address the problem of public spending since the first day of the government.


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