The Central Bank of the Argentine Republic (BCRA) and the Ministry of Economy of the Nation evaluate applying a new increase in the interest rate of 5 percentage points. The debate was installed among officials after the data of 6.6% inflation for the month of February was known. The issue will be defined at a board meeting of the monetary authority this Thursday and the increase would take the monetary policy rate from 75% per year to 80%, which would imply an effective annual rate of 117%, versus the current 107.5%, which which, according to officials, would be an increase in line with the level of inflation reflected by INDEC statistics.
In this case, the objective would be to reinforce the monetary contraction to maintain the stability of the free dollar prices and avoid further pressure on the exchange rate gap.
This in the context of pressure from the Monetary Fund not only to maintain positive real rates but also a demand for less official intervention in parallel dollars given the scarcity of reserves. It would also be the signal that the market takes for granted even when warnings begin to arrive regarding the costs that raising the rate now implies.
It is precisely the collateral damage of the rise that makes the Minister of Economy doubt, Sergio Massaand the head of the BCRA, Miguel Pesce, both reluctant to make the decision. In principle, the rise of 500 basis points would immediately make the voluminous debt of the Central Bank itself more expensive in repos and Leliqs, a snowball that threatens to become unstoppable. On the other hand, it would force the Treasury to further raise the rate in its refinancing operations, which is likely to happen anyway given accelerating inflation.
As published infobaeThe debate is deep. The current scenario on which the BCRA must decide on an increase differs greatly from that of July last year, when the level of negative rates that dragged on from previous years during the administration of the former Minister of Economy, Martin Guzman, left plenty of room for the aggressive rate correction that was implemented through September. Now, the rate level is already high and generates a high cost for the Central in terms of paying interest on its own debt. A new increase aggravates the problem.
All in all, after two consecutive records with rising inflation and expectations of a new rise in March, the officials of the economic team are not unaware that returning to a scenario of negative rates, even when the setback is slight, at the gates of the electoral campaign can be quite risky. An increase in the rate allows us to continue giving air to carry trade bets (taking advantage of the rate in pesos to close a profit in dollars) to decompress any dollarization pressure that could be unleashed in a context of high domestic and international instability.
However, part of the analysis carried out by the economic team indicates that “if it were not for the meat”, inflation in February would have been below 6% of the previous month. Of the 2.3 percentage point acceleration of core inflation -which stood at 7.7% in February-, 2 points are attributable to the jump in meat prices, they warn. With this data in focus, they affirm that a rate increase may not be essential. And they remarked that the board of directors never made the decision to raise the rate based on a single record, with which they insinuated that, like last month, they may decide to delay the decision for another month, after the data is known. of March.
