Senior Economist, Alphacast, Argentina
The Swift Liquefaction: A Close Look at BCRA's Passive Levels
The previous Peronist administration exhibited a remarkable lack of ability to anchor expectations in terms of inflation and exchange rate, mainly because it never showed interest in addressing the fiscal root of long-lasting macro imbalances. This was reflected, among other metrics, in the exponential growth of the balance of interest-bearing liabilities (PR) of the Central Bank of Argentina (BCRA). The PR are composed of short-term financial securities in local currency issued to absorb bank liquidity and delay the inflationary impact of prolonged lax monetary policies. Naturally, the counterpart of the Central Bank's interest-bearing liabilities are, in fact, the deposits of savers.
To measure the inability to manage economic policy in a globally respectable manner, let us consider that in 2023, Peronism issued an amount of pesos equivalent to 314% of the Dec-22 monetary base, in order to pay PR interest, generating additional liquidity that was then absorbed with more PR (Figure 1). In 2022, they printed currency for 93% of the previous year's M0. In 2021, that figure was 68%.
The new Government, headed by the liberal Javier Milei, is tackling the BCRA's PR, amounting to a figure equivalent to 19% of GDP last November (Figure 2) with one of the two tools available, given the lack of access to international debt markets and the low confidence in the local currency: 1) default, followed by some forced restructuring. 2) abysmal liquefaction through inflation (on February 25.5% MoM, 211.4% YoY). Although a bitter decision, the government opted for liquefaction, considering it the lesser evil. Meanwhile, the BCRA is also in the process of issuing FX-indexed debt securities, called BOPREAL. Regarding the bank's balance sheet, the composition of the RR changes (debt in USD is swapped in exchange for debt in ARS), but now liquefying them becomes more complicated.
Now, if the spirit of the new liberal government is to avoid a hyperinflationary landscape by liquefy deposits so that banks can disarm their repos with the BCRA, this is only possible because capital controls have not yet been eliminated in the framework of a very severe financial repression of Peronist roots. The government is quite aware of that, and they are taking advantage of it. The negative real rate is only feasible if there are capital controls in place that prevent people from divesting themselves of pesos and dumping their liquidity into foreign currencies. With much of the Peronist controls still in place (BCRA, CNV - SEC equivalent in Argentina) and a negative real rate, for now, they are not a problem. Therefore, letting the interest rate run below expected inflation may seem useful compared to the 2% monthly depreciation announced for official FX, but will eventually end up increasing the devaluation pressure on the spuriously appreciating local currency (Figure 3).
The Government is carrying out a significant liquefaction through inflation of the BCRA's PR (remunerated -bills and repos- and non-remunerated -monetary base-), which at the end of last January have been reduced to levels even lower than those of Dec-09 (Figure 4). Moreover, history repeats itself again if one notes that Milei received a BCRA with almost the same level of liabilities as Alberto Fernández in Dec-19. But here is the crucial question to answer: is liquefaction taking place at an excessive pace, especially if the short-term goal is to eliminate capital controls? Although Milei’s officials have stated that the order to tackle macro imbalances is fiscal-monetary-FX issues, until a solid fiscal anchor is achieved, more than one might consider that liquefaction is taking place too quickly. High frequency inflation indicators and the composition of retail deposits, the key variables to try to answer that question in the weeks ahead.
コメント