The Central Bank decided to lower the reference interest rate even though inflation forecasts do not indicate a significant reduction.
The reference rate for Fixed-term deposits fell from 35% to 32% annually while that which provides financing to banks went from 40% to 36%, giving the signal that the Government tries to ensure that the shortage of pesos does not color the end of the year.
One drops 300 basis points, the other 400 and the first obvious reading is that the tandem Luis Caputo-Santiago Bausili is seeking to provide banks with more liquidity, in case they need it, to face a December in which, as usual, the demand for pesos by companies and families grows.
Companies need more pesos to pay salaries, bonuses and vacations and families to celebrate the end of the year holidays and anticipate the summer.
In recent economic history, Decembers came under tension between the greater demand for pesos, pressure on the interest rate and on the blue dollar. This time the result is different.
Free dollars continue to point downwards and The exchange gap oscillates at a surprisingly low level, such as 7.2% which separates the cash with settlement (CCL) of $1,090 and the wholesale of $1,016.
The gap at that level not only reconfirmed the belief that the Government will not devalue (the REM, the Central Bank’s survey among consulting firms, says that the devaluation with respect to the official one will be 2.1% in January and 1.9% in February and March) but also raised the expectation of a unification of exchange rates in the short term.
Minister Caputo discouraged this possibility based on a forceful argument: the Central Bank’s net reserves remain negative (less US$ 6,000 million) and as Carlos Pérez, director of Fundación Capital, summarizes, “the scenario without reserves and without stocks “It would be risky even if free dollars are falling.
The Government does not seem very concerned about lifting the exchange rate (President Milei already said that growth can be achieved with it) nor about maintaining negative net reserves while waiting for an agreement with the IMF to provide fresh funds.
Nor does it seem to be stressed by the result of the cash-based current account that is coming five consecutive months with a deficit without considering the “blend” dollar (20% of exports are settled to the CCL in the free market and do not go to the Central reserves) which is taking on a special role in the new situation.
The latest report from the consulting firm 1816 maintains that, “due to the strong peso, Argentina has already accumulated five consecutive months of current account deficit on a cash basis (although without blend we would have had a surplus) and The outflow of dollars for card consumption abroad stands out, which was the largest in the Milei era in October (50% of these expenses are paid with the MEP dollar).
For the blend dollar, which the Government defends tooth and nail to reduce the exchange gap, about US$ 1.3 billion are settled monthly, a figure that would be good for the reserves of a Central Bank that has managed to buy more than US$ 20,000 million in the year, but they were used to pay commitments rather than to reduce the negativity of net reserves.
In the network of fast and furious that generates the decline of the dollar, determining a accelerated increase in the cost of living in Argentina In terms of dollars (Argentines in a hurry to buy tickets to Brazil or go shopping in Chile and businessmen very concerned about what they foresee a strong increase in the income of imported products) the Government is experiencing an unprecedented start to December in terms of exchange rates.
Minister Caputo’s mid-July forecast that “People are going to have to sell dollars to pay taxes” It appears resignified in that people would be selling dollars in the firm belief that there will be no devaluation but also because the sharp drop in family income is only very timidly compensated by the drop in inflation.
Until this week, banks feared that, given an increase in credit demand, they could lack pesos.
Now the Central Bank has opened a window of cheap liquidity (3% monthly) to face a very particular December.