BCRA bid to lower rates

BCRA head Martín Redrado

Argentine government keeps on failing to find a solution to interest rate hike and end of long-term credit. Executives from main banks trading in market state that, for the time being, they are not planning to pull out increases in different lines, despite threats of Argentine Internal Trade Secretary, Guillermo Moreno, to bring legal actions for cartelization.

Financial market traders attribute rate rise to two situations: inflation acceleration (nobody wants to lend at negative rates in real terms) and banks' difficulties to get financing in markets. This last point forces entities to supply themselves with short-term deposits, without any possibility of placing new five-year bonds as it was done before US mortgage crisis.

Yesterday, Argentine Central Bank (BCRA, in its Spanish acronym) further lowered rates so as to pump pesos in financial system. Now, active repos in 7 days will be given at 10.5-per cent rate, half point lower than previous level. The monetary authority also extended fund granting to 14 and 30 days, with yields hovering around 10.75 per cent and 11 per cent respectively. It will be of little use to solve the real problem.

The entity headed by Martín Redrado stated that it had ARG$1 billion daily to pump into market. The stock of repos granted by BCRA has been falling during the last days. It had reached to ARG$1.2 billion by mid September, but it has plummeted to ARG$800 millions and it will keep on sliding in the following days. At the same time, the institution raised by a quarter of point passive repos rate; that's to say, it decided to improve income of funds banks freeze in BCRA. For one-day term, the rate stayed at 8 per cent, while in the case of one week, it moved to 8.25 per cent.

"With BCRA measures and signs, interbank rates have been considerably reduced in the last days," the monetary authority stated through a press release. However, that's not taken as a target; so, it does not transfer to longer-term credits. BCRA press release keeps on signalling that rate resetting is part of "a group of measures adopted by BCRA to speed up normalization of financial system operation." This partly coincides with the feeling reigning among bankers that rate hike arose due to "market volatility stemming from US subprime crisis." Interbank rate tumbled to 8 per cent from 14 per cent at the beginning of September. Longer rates also reacted. BADLAR (yield paid by banks for more-than-ARG$1-million time deposits) dipped to 11.8 per cent from 14.6 per cent according to Friday report. From the other side of the counter, nothing has changed with respect to credits for the time being.