BCRA's Actions in View of the Development of the Economic Context and Liquidity Conditions
Since December 10, 2023, there have been signs of a sustainable reduction in macroeconomic uncertainty, among which the following stand out:
MONETARY BALANCE FACTORS
Falling trend in retail inflation. Since relative prices were adjusted in December 2023, a steep slowdown of inflation has been observed, despite the significant statistical carry-over of inflation in its monthly averages. Price surveys conducted on a more frequent fashion have been useful to see the month-on-month dynamics. In the coming months, core inflation measurements will gain more significance in the inflation path diagnose, considering the announced adjustments to regulated public utility rates.
Moderation, in real terms, of money issuance and ensuing improvement in the BCRA's balance sheet. Since December 10, the monetary base and the broad monetary base (including remunerated liabilities in pesos) have been reduced by 10.5% per month and by 5.8% per month on average in real terms, respectively. This monetary anchor has contributed to the slowdown of inflation thanks to the immediate resolution of two major accumulated macroeconomic imbalances:
• First, the removal of monetization due to fiscal deficit, which climbed to 5% of the gross domestic product (GDP) through direct and indirect sources in 2023. In fact, since December 10, the monetary effect of fiscal policy has been working in an opposite direction and has become virtuous, reducing the amount of pesos in circulation by about ARS0.8 trillion. In this way, the goal of zero accumulated net financing for 2024 agreed with the IMF in the Memorandum of Economic and Financial Policies has been overperformed.
• Second, the broad acceptance of the Bonds for the Reconstruction of a Free Argentina (BOPREAL), which strongly reduced the undesired holding of pesos and the potential demand of foreign currency in the short term as they served as a foreign exchange swap. The BOPREAL bonds placed to date for nearly USD8 billion enable importers to access the Free Foreign Exchange Market (Mercado Libre de Cambios, MLC) on a deferred and predictable basis. The importers' debt account reached a historical high of USD58 billion by the end of 2023 due to the inconsistent and discretionary way the foreign exchange and foreign trade policy had been previously implemented. Thus, the outstanding demand of foreign currency could be managed successfully without compromising macroeconomic stability.
FOREIGN EXCHANGE BALANCE FACTORS
Sustained accumulation of international reserves. Since December 10, 2023, the BCRA has been purchasing foreign currency in the MLC on a sustained basis, reversing the trend of 2023 in which net international reserves fell by USD23.4 billion. Thus, purchases have contributed to accumulating net international reserves for USD8.7 billion by the end of the first quarter of 2024 (IMF target methodology).
Stability of the gap between the official US dollar exchange rate and parallel exchange rates, and downward revision to the price of dollar futures contracts over the official exchange rate. The gap of the exchange rate has plummeted from about 200%, its peak before December 10, 2023, to 60% afterward. Nowadays, the gap between the parallel exchange rates and the official exchange rate for importers is below 5%, strongly reducing foreign exchange uncertainty and its impact on inflation expectations. In addition, the low volatility observed in the different gap measurements has contributed to anchoring nominal expectations. Moreover, the dollar futures contracts (ROFEX) have systematically and sharply fallen, which flag increasing confidence in the consistency of the current macroeconomic policies.
BCRA'S ACTIONS
In response to the evolution of the economic context, higher exchange rate predictability and better financial liquidity conditions, the BCRA's authorities have reassessed the risk balance and have adopted the following measures:
Relaxation of access conditions to the MLC for MSMEs: companies eligible within the MSME group will be allowed to pay for their imports of goods within 30 days. The measure applies to all imports with customs registration as of April 15 and payment terms in installments of 30, 60, 90 and 120 days.
Relaxation of access conditions to the MLC for advance payments on capital goods for MSMEs: companies belonging to this group may pay in advance up to 20% of the price of goods to be imported.
Both measures relax the access conditions to the MLC for MSMEs and are in line with those taken on February 10 through Communication A 7952 under which more than 6,400 MSMEs have accessed, to date, to the MLC to settle debts for imports prior to December 12, 2023. By reducing import payment terms for MSMEs in accordance with standard international trade practices, the flow of imports would be normalized for about 20,000 companies that are critical to employment creation and economic growth. Greater predictability and efficiency of foreign payments will result in improvements in financial operations planning and lower costs for MSMEs, thus reducing the inflation rate.
Flexibilización del acceso al MLC para anticipos sobre bienes de capital para las MiPyMEs: para el caso particular de importaciones de bienes de capital, las empresas de este segmento podrán pagar en forma anticipada hasta un 20% del valor del bien a importar (ver Comunicación A7990).
Ambas medidas flexibilizan las condiciones de acceso al MLC para el segmento MiPyME de manera adicional a las implementadas el 10 de febrero en la Comunicación A7952 bajo la cual, hasta la fecha, más de 6.400 MiPyMEs accedieron al MLC para la cancelación de sus deudas por importaciones previas al 12 de diciembre de 2023. Al permitir reducir los plazos de pago de las importaciones de las MiPyMEs para alinearlas con las prácticas habituales del comercio internacional, se estaría normalizando el flujo de importaciones para alrededor de 20.000 empresas que conforman un núcleo fundamental de generación de empleo y crecimiento económico. La mayor previsibilidad y eficiencia de pagos al exterior redundará en mejoras de planificación, de operación financiera y de costos de las MiPyMEs, contribuyendo a una disminución en la tasa de inflación.
The monetary policy rate will be reduced: the reverse repo interest rate will be 70% APR.
Normalization of liquidity management through minimum reserve requirements: the minimum reserve requirements on balances in interest-bearing sight accounts of money market funds will be raised from 0% to 10% as from April 15. This measure seeks to standardize the prudential regulatory treatment of accounts of similar nature.
Deactivation of the swap agreement with the Bank for International Settlements (BIS): within the framework of the reorganization of the BCRA's balance sheet and the adjustment of economic variables, the BCRA has reimbursed in full the funds received under the Credit Facility Agreement with the BIS. Hence, the swap has been removed from both the BCRA's gross reserves and foreign currency liabilities, the net reserves position remaining unaffected. Neither will the BCRA's liquidity position be affected since the facility agreed upon was not available. The measure will result in savings of over USD10 million per year for the BCRA's balance sheet. The BCRA may sign swap agreements with the BIS in the future if it deems it appropriate.
April 11, 2024
