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Term deposits rose by 21% in two months: how long will the boom continue? – 08/12/2018

BCRA will not eat the feud: the low interest rate will be very slow and control the dynamics of the currency base so that it does not jeopardize the exchange rate differential that separates the expectations of inflation / devaluation.

Departing from the Tequila crisis in Mexico teaches us that accelerating cuts in rates after the balance of payments crisis can generate profits with the risk of segregating expectations. BCRA Mexico declined from 74.8% in April 1995 to 33.5% in September 1995, the dollar price rose by 27%, and BCRA had to raise the rate to 53%.

Although BCRA has eliminated Leliq floor by 60% TNA (delays in the previous currency regime) after falling inflation expectations, the BCRA has increased its prudence in two key aspects:

1) You said you were going to meet the December monetary target (up 6.3%) to at least $ 16,000 million. That is, they will not use all the monetary expansion they have in December ($ 170,000 million, which read currency data on December 5) from the point of view of the monetary program due to the negative resistance that left November and the expanded target in December,

2) Asymmetry at the edges of interventional changes that make it more feverish (prudent). In December, the market intervention on the market floor changes of the bands is up to $ 50 million a day (compared with $ 150 million a day at the upper bandwidth) with a cumulative currency limit of 2% in December of December BM (27,000 million dollars). In this sense, the lower intervention expected on the floor of the band could increase the chances that the rate will perforate a lower band if demand for pesos strengthens.

Boom of fixed terms

Since the effective date of the Monetary Program on 1 October, private sector term deposits have increased growth was 21.3% in just 2 months, with a placement of more than $ 1 million, which grew by almost 28% over the period.

For returns that set a fixed term over a given period, it returns the average rate of the system, 15% measured in dollars, with a combination of high peso rates and a nominal drop in the exchange rate from the peak in late September.

Do they have room for further growth?

Given that the jump was associated with a particular process, real growth (higher than the average interest rate) is hardly repeated in the time deposits seen in the past two months.

Trajectories in the coming months will depend to a large extent the evolution of the dollar equilibrium, which will be closely linked to the dynamics of the country's growth and the cost of sovereign financing.

President of Central Bank of Argentina (BCRA), Guido Sandleris (EFE)

President of Central Bank of Argentina (BCRA), Guido Sandleris (EFE)

How does the dollar rate balance continue?

The actual reliability thermometer is not on the stock market where interest rates are exceedance can always help stabilize in the short term with very high costs for the level of activity, but in the area the cost of financing required by the market in the country,

Only in the context of a steady decline in the country's risk the interest rate needed to stabilize money demand will be in line with the return on funding for families and businesses at reasonable prices.

So far, interest rates have been required to meet the currency program with banks that have no choice but to get into LELIQ with a view to curbing dollarisation of assets, credit surcharges, and temporary disarmament of the minimum cash that this regulation permits. (it is against the monthly average) is lower than the rate required for large players to stay on a fixed date and not exceed the dollar, taking into account the rate that requires a replacement rate without risk US government bonds, country risks and devaluation expectations.

Prices forward implicit in the Lecaps yield curve off a significant reduction in pesos rates for the next months in line with Lecaps' speed for 180 days in 35% TNA by the end of April 2019 vs current 47.5% TNA,

The same applies to the REM Central Bank, which has expected Leliq 51% TNA since March 2019 compared to the current level of 59% TNA. Therefore, the investor must test the capital gain by stretching along the PASS curve to compress the speed (duration of effect) vs. the risk of returning the dollar from the lower band (exchange rate influence).

Theoretical exercises: A potential capital gain of 500 basis points (with a 60% to 55% Leliq interest rate) for a 3-year bond will be fully offset by the theoretical path that the dollar might have from the bottom band to center of band.

What does the country's risk decline depend on?

At the risk of a country that last week was the maximum of September, and a five-year CDS contract that implicitly shows a probability of around 37% in that period, there are three factors, the cost of foreign currency financing: the political risk faced by the electoral year in a recessive context, uncertain world and high volatility due to geopolitical size and market changes that continue to count on the 2016, 2017 and 2018 Argentine debt.

While these factors continue to build, and with the lessons learned from the recent past, BCRA is likely to step by step without risking a low level outside the party that separates expectations, undermining the credibility of building strong monetary policy in recent months high cost of activity.

As far as this scenario is concerned, today's forward rates could be cheaper at a relatively optimistic rate. Earlier or later, the BCRA should refer to surrogate reserve vouchers to prevent banks from transposing the LELIQ rate downwards as the Badlar rates fall, which threatens the growth of time deposits. ,

2019: How to create a compatible economy nominal, which will be around 30% with a "0" currency program?

The currency base will grow by about 19% in 2019, will show seasonally adjusted June / December, and will increase by 1% per month for one currency program since July.

Sandleris, Head of BCRA.

Sandleris, Head of BCRA.

The exhaust valve will be given the possibility of weighing the weights if the exchange rate will lower the lower band for the real growth in demand for money. Nothing free in the election year, when demand for coverage and country risk will dance to the rhythm of the election.

What is clear: bring the bucket to annual inflation of 30% in December 2019 with salaries that will be around 35% and rates in the 50% zone, the exchange rate must be 20/25%,

Therefore, the rate can not rapidly decline and the BCRA will continue to control the monetary issue in order to mitigate the inflationary pressure in the economy with inertia in common and indexing contracts (dollar rates and past inflation) at the expense of company margin compression (rising unemployment?).

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