Monday , October 3 2022

The BCRA will not eat the amount: the low rate will be very slow


Sentence Jerome Powell, the president of the Fed, as the level of the Fed Funds rate would be shorter than the long-term neutral rate that does not accelerate or kill the economy going to that address. Fuel for the S & P? It depends, because on the other side, we have the US Treasury bond output curve flat-up (with only 10 bases spread between the 10 year rate and the 2 year rate) against the collapse of inflation expectations and reducing rates in the longest part of the curve, warning of the risks of slowdown in the United States.

In terms of the local market, it seems that everything indicates that the interest rate is required to comply with the financial program (with banks that do not have another to go to Leliqs given the increase in fixed terms and credit rationing) Most of the rate required for large players remain on fixed terms and not go to the dollar.

The reduction in twelve-month inflation expectations in the REM (from 30.6% to 28.6% of the median) it would enable the BCRA to drill Leliq's 60% LNAq rate floor. However, the BCRA would remain to make such a decision and raise the floor limit to a formal financial policy statement with the support of the Financial Policy Committee, which we do not know again when it happens .

On the other hand, the seasonal adjustment of the financial base in December (+ $ 82,300 million against the September average target) and December start, with the negative drag that left the last data from November and # 39 The rupture made during the first two trading days in December would allow BCRA to expand the financial base to a ceiling of $ 165,000 million (13% of the financial base) and is facing the injection of the pesos of Lebacs's last maturity for $ 70,000 million, without compromising the financial program.

Especially in a context where banks help to dispose of temporary free reserves (given the monthly limit of required cash requirements) to enter the Leliq rate against low rate expectations . Now, from the side of the dollar balance / interest rate and anchoring expectations, it seems that the edge is much more limited. I mean, Everything would suggest that the Central Bank has no place to accelerate the reduction in the rate and that the implicit rates of the future dollar future curve are compatible without changing the exchange rate where there is Risks & exchange rate and stability of the exchange rate. and term term that is funded by Leliqs.

The rates involved in the reduction in Lecaps product curves are a significant reduction in the weight rates for the next few months consistent with the 180 day Lecaps rate in a 35% TNA by the end of April 2019 against a current level of 47, 5 % TNA. The same thing is true for REM of the Central Bank, which expects a Leliq rate of 51% TNA from March 2019, compared to a current level of 60% of TNA.

Therefore, the practice that the investor should have in mind is to test the capital profits edge by extending the bond curve named by pressure by compression rate (length of effect) against the risk of resumption and dollar the lower band (effect of exchange rate). Theoretical Exercise: the potential capital gains of a 500-point rate compression (with Leliq's rate ranging from 60% to 55%) for a bond in pesos with a length 3 fully paid out with the theoretical path that could eventually have the dollar from the lower band to the middle of the band.

After all, the Badar rate that pays fixed-term deposits to offset the performance of US Treasury bonds must, the country's risk and the expectations of the country's devaluation. And although November's inflation gives less than 3% a month, leaving zero in December, it would be good news from the side of inflation / depreciation expectations, the political risk that faces the year Election continues to be a barrier to the country's disappearance.

So, I believe this time, the BCRA will go step by step, without interrupting a low rate that remains away and disqualify annexes of expensive expectations to the electoral year. The BCRA's decision to wait for a new financial policy statement to make a decision about raising the limit on the floor floor goes to that address and that's good news about the entity's credibility. And if this is the scenario, today's premium rates could reduce a relatively optimistic rate down the path. Sooner or later, the BCRA should appeal for reducing the unpaid backup requirements so that the banks will not transfer the Leliq rate into the fall of the% 39; n does not compromise the growth of time deposits.

Despite the exchange stability and default risk clearance for 2018/2019 as a result of developments of payments from the Fund, the 5-year CDS contracts are unlikely to have accumulated default probability of around 37% on 5 years (assuming me a 33% recovery), with a product curve that shows a jump (about 500 points) between the mature bonds in 2019 and those that are expires in 2020/2021. Clearly, the political risk plays against 2020 where the Fund's money is canceled and where the market needs to go out to impose a debt of around $ 16,000 million.

The government's goal is to get out of the recession quickly with the help of the rural, tourism and energy sectors, to improve the numbers of surveys. However, the financial adjustment and financial program puts an interest rate and floor ceiling, slowing down the recovery of real pay and credit.

After all, to spread to the area of ​​30% per annum in December 2019 and allow partial recovery of real pay (approximately 4% in the electoral year), with wages that will be in the a zone of 35% (given the 2018 departure drag and average rates of around 50% to lower subsidies, the dollar should be anchor.

And a scenario of exchange rate stability in the election year will require, in addition to dollars exports and the Fund, a prudent financial policy that will continue to control the financial issue and secure a positive real-rate floor to help to ban an economy that has a pariwarial respiration and contract indexing (gas and electricity rates with dollar and retirement costs that are likely to adjust to past inflation), probably due to the modification of the periphery of the companies.

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