The BCRA reduces its reverse repos and achieves its lowest rate ever

The Central Bank settled in advance reverse repo transactions for a total of US$5 billion that had arranged with seven international banks at the end of January 2016 and arranged new transactions with two international banks for US$ 1 billion. Apart from the reduction in its reverse repos by US$ 4 billion, it recorded a +2.25% LIBOR rate at one month.

Since these transactions have been arranged, the context of the Argentine Republic has improved significantly leading to a sizeable hike in the price of bonds, a drop in interest rates in the entire sovereign yield curve and, therefore, a decline in the cost of attracting foreign capital. In turn, the balance sheet has improved considerably and having purchased over US$8 billion since December 17, 2015, the Central Bank strengthened its position in International Reserves thereby reducing the need to have such a significant additional liquidity in US dollars to face potential external shocks.

As a result of these improvements, the Central Bank of Argentina decided to reduce the stock of its reverse repos settling the original transaction in advance and arranging new transactions with Banco Santander and Deutsche Bank AG for a total of US$ 1 billion at a dramatically lower cost, which shall equal a +2.25 % LIBOR rate in US dollar at one month. This will allow the BCRA to record net savings of around US$89 million.

The new transactions are reverse repos in international markets at the lowest rate the Central Bank has ever registered in its history for transactions bearing these characteristics.

Meanwhile, the BCRA has activated one of the mechanisms it usually uses with the BIS to manage—more efficiently and at a lower cost—its balance sheet, which recorded an additional income of US$ 2.5 billion today and which will allow to have an additional maneuver margin in the coming months.

July 29th, 2016

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