The BCRA has announced a new component in the strategy followed to fine-tune its monetary policy instruments. This is meant to gradually reduce the LEBAC bills stock which reaches about ARS1 billion (ARS1,000,000,000). Half of this amount is held by financial institutions and the rest is in the hands of non-bank institutions such as mutual funds, public organizations, companies, individuals and non-residents.
Once this process is over, the stock of instruments issued by the BCRA will be significantly lower than at present and will solely be held by banks of the domestic financial system. This will improve the effectiveness of monetary policy to fight inflation, reduce vulnerability in the foreign exchange market, encourage the development of the financial system and strengthen our economy.
The measures to be implemented are the following:
1. The BCRA will offer in each auction a lower amount of LEBAC bills than that falling due at maturity; only non-bank institutions will be eligible to tender. The next auction will take place on August 14, 2018, when an amount of around ARS330 billion held by non-bank participants falls due. In turn, the BCRA will issue a maximum amount of ARS230 billion of LEBAC bills. The stock of LEBAC bills will decrease once again in September, October and November auctions. The BCRA forecasts that it will virtually be removed in December, whenever market conditions so allow.
2. As for banks, the BCRA will only issue one-year term Central Bank notes (NOBAC notes) and liquidity bills (LELIQs). The latter will end up being the BCRA's main channel of sterilization.
3. Banks will only make bids in LEBAC bills primary auctions on behalf and to the order of non-bank third parties. Banks will not be allowed to sell their remaining stock of LEBAC bills in the secondary market to non-bank institutions.
4. The Ministry of Economy will announce a calendar of regular auctions of National Treasury Bills in pesos upon the maturity dates of LEBAC bills. The first National Treasury Bill auction will take place on Wednesday, August 15, 2018. These instruments will serve as an alternative investment in pesos. The Ministry of Economy will develop a schedule of market makers to provide liquidity to secondary markets for National Treasury Bills. In turn, it will make available detailed information on the different types of bills in due time.
5. The BCRA will make every effort to ensure dollars availability for the smooth functioning of the foreign exchange market by holding daily auctions in dollars.
August 13th, 2018