Peso pumping curbs rate hike

BCRA head Martín Redrado

Argentine Central Bank (BCRA, in its Spanish acronym) injected yesterday ARG$230 millions. As a result, interbank rate plunged one point to 13.25 per cent annual, easing pressure on credit market.

Meanwhile, sovereign bonds had a good day, particularly those denominated in pesos, which climbed 3.4 per cent, boosted by a possible US rate cut. Within this context, dollar fell.

During yesterday's session, rates got steep and market became really speculative. As a consequence, strong dollar-denominated purchase orders came up to invest in peso-issued bonds (parity transactions).

However, yield of six-month/one-year LEBAC and NOBAC (BCRA's Bills of Exchange and Securities) kept on rising. Rates settle between 20 per cent and 22 per cent.

Dollar selling pressure was so strong that the American currency plummeted to ARG$3.18 for sale in exchange agencies, while, in Forex-MAE, it dipped to ARG$3.138.

Therefore, BCRA did not have to intervene and reserves stayed at $43.11 billions, since, despite paying $60 millions of BONAR VII interests plus a loan from the Latin American Integration Association (ALADI, in its Spanish acronym), euro rise offset the situation (a portion of Argentine reserves are denominated in the European currency).

In wholesale market, dollar showed a selling trend from the very beginning, opening at ARG$3.1540. By the end of the day, the American currency closed at ARG$3.138. BCRA could have bought foreign currencies if willing to do so.

Dollar sale had its raison d'etre in bonds and their high rates. For example, peso-denominated Discount yields almost 9 per cent out of inflation, equivalent to a 20-per cent annual rate. A bond like BOCON PR11 yields 22 per cent.

Time deposit

LEBACs offer similar profits. Small- and medium-sized savers get more than 14 per cent annual with a 30-day time deposit.

As regards bonds, rate hike showed on strong purchase of peso-denominated indexed instruments, which were paid with dollars. In view of appealing rates in pesos, foreign-currency holders tried to change their positions and bought peso-issued bonds, envisaging the possibility that US Federal Reserve may trim interest rates in the following days.

For that reason, swap bonds and coupons climbed 0.70 per cent. Yet, they were higher up throughout the day. Profit taking trimmed prices by the end of session.

Post-default bond demand also increased with dollar arrival. BOGAR 2018, a severely lashed instrument lately, stood out by rising 2.15 per cent.

Dollar-denominated bonds were completely absent. For that reason, their trading was poor with slight drops.

In New York, however, dollar-denominated debt swap bonds leaped more than 1 per cent, which showed on a 2.34-per cent fall to 460 points of Argentine country-risk.

Bond trading in the Electronic Over-the-Counter Market (MAE, in its Spanish acronym) and Buenos Aires Stock Exchange hit more than 1.5 billion due to public holiday of the Jewish community and due to cautious investors.

Market participants bet that, next Tuesday, US Federal Reserve will cut interest rates by 50 basis points to 4.75 per cent annual.