This Monday, before 10 o’clock in the morning -when the Argentine exchange market starts to operate- the Central Bank will communicate what will be the monetary policy rate that will apply at least during July. Since April, this rate is at 62.5% and it is estimated that it could be lowered very slightly, to a level that would be around 60%.
In the last 90 days, the monetary and financial panorama has improved a lot. Inflation began to fall, and so did inflation expectations. The most striking: the dollar cooled, reaching the last Friday 7% less than at the end of April.
Given this scenario, the Monetary Policy Committee of the BCRA composed of the President, Guido Sandleris, the Vice President, Gustavo Cañonero, the Second Vice President, Verónica Rappoport, the Director Enrique Szewach and the Deputy General Manager of Economic Research Mauro Alessandro, will define, transcended, a very slight reduction in the rate. In the market, they speculate that it could be set at around 60% per year.
In the Central are convinced that although the financial context has improved significantly compared to the anxiety that was observed in March and April – until the IMF authorized the BCRA to intervene freely in the foreign exchange market – want to move very carefully in the relaxation of the monetary rigor that they are applying. They know that the PASO test must be passed. The electoral estimations, and an eventual bad result for the Government in this electoral test, can awaken the exchange tension that today seems appeased.
On the other hand, the management of the Central Bank accepts that the current rates are against the recovery of credit, but in a certain way they recognize that between economic activity and exchange rate calm, they undoubtedly choose the second option, because ultimately the price of the dollar is the that can define the fate of the Government in elections.
Nor do they want to repeat the error of the beginning of the year, when they let themselves be dragged by the improvement of the global context and the entrance of dollars and brought the rate to 42% in the first days of February. The bad inflation data of that month forced a violent swerve, and rates again shot up to 74% at the end of April.
For Federico Furiase, from the consultancy Eco Go, “the Leliq rate floor has to be consistent with a floor with an equivalent badlar rate (adjusted by reserve requirements) that leaves a positive monthly rate with respect to expected inflation, which satisfies the investor who decides to invest in pesos instead of spending in dollars “.
After this assessment, Furiase concludes that with a supposed floor rate of 59% per year for the Leliq, the Badlar floor for a fixed term of less than 30 days would be around 47.3%, consistent with a monthly effective rate of 3.94% positive against expected inflation around 2.5% per month for the next few months “.