The Central Bank has managed to lower the rate to 60.75%, but remains cautious – 29/11/2018

The central bank has managed to reduce today 60.75% the interest rate you pay for issuing liquidity letters (leliq). This is the lowest rate since the launch of daily calls for these instruments.

In early October, he came to pay near 74%. The rate that he paid this afternoon is almost "stuck" to the floor by 60% who agreed to keep the BCRA and the Monetary Fund until the inflation of clear and consistent signals indicates that it is down.

This will be based on data from the Market Expectations (MER) survey conducted by the central bank / consultant.

We only have today to send this information to the BCRA. That is, next week will be known, when the November MER results are released, if it is confirmed that it already exists two consecutive months of downward inflation expectations. If this happens, the plant would be able to set Leliq's interest rate at less than 60%.

In the call for offers today, letters from 145,742 million pesos, and the central sent letters of 189 162 million pesos, that is to say that he came out of circulation 44,0000 million pesos.

But not everything is as linear in terms of interest rates. The Central Bank itself warned, when this very strict monetary program was launched, that would allow the monetary base to increase up to 6% in December for seasonal reasons (increased demand for pesos for Christmas bonuses, holidays, parties, etc.). But yesterday, the head of the central bank, Guido Sandleris, said that prudence would prevail. That was during his speech at an event organized as part of the G20 by the Council of the Americas. Two paragraphs from his speech:

"This central bank will be very cautious in the coming months, we are fully aware of the risks our economy is facing. We will increase the monetary base if conditions permit. In particular, December is a month of strong seasonality in the demand for money. As a result, our monetary base goal is 6% higher. However, in the same way that we exceeded our monetary base objective the previous months, we will also do so in December if we believe that the increase in demand for money is not what we expected. "

"This same criterion will be applied if the exchange rate is finally located below the non-intervention zone. We will expand the monetary base by buying currencies only at a rate consistent with the growth of money demand."

At this meeting, he planned to report in December on the rate of adjustment of the maximum and minimum values ​​of the exchange band, adjusted since October at a rate of 3% per month.

Sandleris has clearly warned that stringent control of monetary aggregates may not be less relaxed. Maybe the expected drop in rates will make you wait a little longer.