The Central Bank of Argentina has introduced a new monetary framework aimed at stabilizing prices. This initiative follows the implementation of zero issuance and the removal of interest-bearing liabilities, among other measures.
The central bank has defined this new monetary policy by fixing the amount of money in relation to the broad monetary base (BMA). To help eliminate inflation and lay the groundwork for a currency competition framework, they have initiated the second phase of a stabilization program under currency controls. This phase includes an objective to limit the BMA to the nominal amount recorded on April 30, which was 47.7 trillion pesos.
This move has drawn criticism from those in authoritarian positions who are uncomfortable with a professional and critical press, as journalism is a cornerstone of democracy and often challenges those who believe they hold the ultimate truth.
Regarding the BMA, the Central Bank highlighted that its recent value closely resembles the total monetary base that the Argentine economy operated with before the currency controls were imposed in August 2019.
Additionally, the Central Bank has eliminated the “passive repos” as of July 22, effectively concluding a process that reduced its interest-bearing liabilities from 58.3 trillion pesos in August 2023 to zero in July 2024. On the first day that liquidity enhancement facilities (LEFIs) were available, banks subscribed a total of 10.85 trillion pesos.
In addressing indirect fiscal monetization sources (BIDs and PUTs), along with supplementary regulations and the sale of derivative instruments to banks, the Central Bank opened various avenues for indirect monetization of the fiscal deficit. On July 19, it announced the termination of PUTs, potentially generating 13.2 trillion pesos in monetary issuance.
Under the new monetary framework, banks can manage their peso balances daily by subscribing to and selling LEFIs through the Central Bank. These LEFIs are exclusive to banks and capitalize the current monetary policy rate of 40% annually.
Notably, due to the tax treatment of LEFIs, which are not subject to income tax, banks will see the effective policy interest rate increase from 3.00% to 3.34% from the start of operations. The banks can also use their holdings of LECAPs and BONCER as collateral to request temporary liquidity from the Central Bank for 1 or 7-day terms at a cost set at 48% annually.
Looking ahead, the Central Bank’s monetary programming indicates an anticipated increase in the demand for money in the second half of 2023. The monetary base is projected to shift from its low of 2.5% of GDP recorded in March 2024. The Central Bank expects an ongoing remonetization process throughout the second half of 2024, potentially absorbing 21% of the idle liquidity established when the BMA was set on April 30.
Source: https://www.perfil.com/noticias/economia/el-banco-central-definio-la-segunda-fase-del-programa-economico-para-implementar-la-competencia-de-monedas.phtml
