Credit still expensive despite rate cut

Martín Redrado

Argentine Central Bank (BCRA, in its Spanish acronym) managed yesterday to reduce significantly short-term rates. Interbank rate or call money ended at 9.50 per cent annual, after hitting 12.75 per cent on Friday. However, this reduction won't transfer, for the time being, to the longest terms nor to credit cost.

As this newspaper anticipated yesterday, BCRA has set into motion new mechanisms to lower rates, particularly short-term ones, which the monetary authority finds easy to handle. For that reason, BCRA pumped ARG$1 billion into market through active repos at 11 per cent annual. And, in order to prevent cash from ending in just a few hands, the entity provided that each bank could gain access to such "liquidity window" for an amount equivalent to their participation in financial system.

"BCRA has decided to speed up both monetary and financial system normalization, which reacted with extreme caution in view of foreign markets' volatility," the entity headed by Martín Redrado signalled through a press release. Liquidity pumping was not necessary, since it only placed ARG$25 millions through repos. This sign was enough to cause some banks to get rid of a portion of pesos secured as buffer in the first fortnight of September. With these funds in market, call money retreat was very quickly, returning to almost pre-crisis levels.

In this way, BCRA fulfilled the goal set at the beginning of the month to avoid greater jitters: the aim is to hold dollar below ARG$3.20 (closing at ARG$3.17 yesterday in retail market) and short-term rates at 10 per cent annual.

Significant increase

However, for the time being, BCRA has only managed to tame really short-term rates (one day and seven days). When the term extends to 30 days, cost of money in market rises significantly and, in the case of 90-day terms, such increase becomes even more considerable.

"Rate hike is related to Argentina's general situation, which shows on country-risk rise. As long as core problems leading to such situation are not attacked, hardly solved before October presidential elections, credit cost won't decrease," the financial manager of an Argentine bank explained.