For economists, raising the interest rate is a correct but insufficient measure given the expectation of devaluation

Photo Ivan Cachanosky
Ivan Cachanosky

Lic. in Business Administration. Master in Applied Economics of the UCA. PhD in Economics from the UCA.

INFOBAE – In the midst of the strong exchange rate pressure in recent months, the Government continues to implement measures to contain the rise in the dollar in a context in which the gap between the free and the official rate exceeds 100% and inflation begins to accelerate after the strong monetary issue to alleviate the crisis that exacerbated the coronavirus pandemic. In this framework, the Central Bank today raised the interest rate paid to savers by 30-day fixed terms in pesos of up to $ 1 million to 37% per year, provided they are made by human persons, with an increase of three percentage points relative to its current performance.

The measure was adopted at the meeting of the Board of the Central Bank today, in which it was also approved that companies or the largest fixed terms receive a rate of 34% (Nominal Annual Rate), two points more than what they pay till the date.

In this context, economists consulted by Infobae affirmed that it is a measure that goes in the right direction but that it is insufficient. Matías Rajnerman, head of the Ecolatina consultancy said that “it is a measure that goes in the right direction but arrives late and in very limited doses.”

“In isolation, it is not enough. A 37% annual rate, is a 3% monthly almost 4%. With this inflationary acceleration, the rate fell far behind. The objective of the rate hike is to discourage the demand for official and parallel dollars. If they reward me for saving in pesos, I’ll stick with the fixed terms. The problem is that the expectation of devaluation is so great that it seems that everything falls short and nothing calms the market ”, he remarked.

For Martín Kalos, director of EPyCA Consultores, it is a logical measure that is complemented by others that have been taken. “It seeks to correct the lag with inflation. It is pragmatic in terms of results and short-term expectations. Although it is insufficient by itself but it is part of a series of measures that are being taken to normalize financial behavior ”, he considered. A 37% annual rate is 3% per month, almost 4%. With this inflationary acceleration, the rate stayed very far (Matías Rajernman)

In this sense, he argued that although it is strange news for the productive sector, “in this context, macroeconomic stabilization is more important and that there are no financial tensions.”

For his part, Andrés Asiain, director of the Scalabrini Ortiz Study Center (CESO) stressed that the increase in the rate is to discourage saving in dollars in a context in which inflation is accelerating.

“It seems correct to me but I do not think it will have an impact in inflationary terms. It can cushion the pressure on the dollar a bit if the fixed terms are very negative with respect to inflation, “he said.

And he added: “I think the inflationary issue runs on the other side and has to do with the thawing of many prices and the rise in parallel dollars. It is a measure that tends to calm the exchange rate pressure but it will not have an impact on inflation directly. ”It seems correct to me but I do not think it will have an impact in inflationary terms. It can cushion the pressure on the dollar a bit if the fixed terms are very negative with respect to inflation (Andrés Asiain)

Meanwhile, Iván Cachanosky, chief economist of the Fundación Libertad & Progreso told Infobae that “regardless of whether it is an orthodox measure or not, reality was imposed on the government.”

“Financing a pandemic only with monetary issuance was going to have consequences, one of them is the gap between dollars. The pressure on the dollar continues no matter how much the last few wheels have fallen. The inflation that was announced today does not contribute ”, he analyzed.

And he added: “Some measures are more orthodox in relation to what this Government thinks. When you raise the rate you can harm the level of activity although this year that is lost due to the pandemic. The government has to lower inflation as much as it can. Although this measure is not necessarily going to calm the dollar. The previous government raised the rate and the demand for dollars continued ”.

According to the economist, the rise in the interest rate is an isolated measure. “The problem is one of trust. The waybill is missing. They have to present a plan that you have to see if it is credible or not. If there were a plan, there would not be this collapse of the demand for the peso ”, he assured.

Last port, Lorenzo Sigaut Gravina, director of Ecolatina, said: “It is a reaction to inflation. It is intended that the rate is not negative. It was already known that inflation would be closer to 4% than 3%. We are facing a government that was very close to an open exchange crisis and began to take more orthodox measures such as fiscal adjustment, dollar linked, rate hikes. These are measures that have a cost but the Government seems determined to try to stabilize the economy.

It should be noted that the Government also ordered an increase in the monetary policy interest rate to continue with the strategy of harmonizing yields in pesos. In this sense, the 7-day repo rate rose two points, which stands at 36.5% NRT and at one point the 1-day repo rates to 32 percent, according to what was reported by the Central Bank. they are more orthodox in relation to what this government thinks. When you raise the rate you can harm the level of activity although this year that is lost due to the pandemic (Iván Cachanosky)

At the same time, the harmonization process included an increase in the yield of the Liquidity Letters (Leliq), which increased by two points to 38 percent. This is the first rise in the Leliq rate in the mandate of the current Central Bank administration, which had reduced the monetary policy rate from 62% in December 2019 to 36% at the beginning of November.

The measure is part of a set of adjustments in the monetary policy of the monetary authority that seek to harmonize the level of rates and the cost of the monetary liabilities it faces, at the same time that it intends to take pressure off the exchange market and offer better conditions for the investment and savings in local currency.

Along these lines, this year the BCRA implemented successive increases in the rates that banks must pay for fixed terms, which meant that, until September, deposits of this type from the private sector accumulated a growth of over 80% in the last 12 months . In real terms, it implies the highest year-on-year real increase on record, according to the latest Central Bank Monetary Policy Report.

However, the first signs of exhaustion of the rate policy for deposits in pesos came in October, when the fixed terms of the private sector fell 5% to $ 2.7 trillion, adding traditional placements and those denominated in UVA, then of five consecutive months of monthly growth of between 5 and 10 percent.

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