Endogenous Issuance of Remunerated Liabilities Is Eliminated

The BCRA Has Eliminated the Endogenous Issuance Caused by Remunerated Liabilities, Moving Forward in the Process of Balance Sheet Restructuring

The Board of BCRA will suspend reverse repo transactions as from July 22, 2024. Under Comunicación A8060, the BCRA set forth the technical and operational aspects of the Fiscal Liquidity Bill (Letra Fiscal de Liquidez, LeFi), which will serve as the main liquidity management instrument of the banking system.

The BCRA’s remunerated liabilities evidence the need to sterilize the surplus of pesos issued to cover the fiscal deficit of the past few years. The migration of the existing reverse repos to debt instruments issued by the National Treasury began in mid-May with the issuance of bills at a fixed rate by the Ministry of Economy. This is the last step in the elimination of this source of endogenous issuance that adversely affects monetary programming and the anti-inflationary process.

The migration of remunerated liabilities will be implemented through the LeFi, issued by the National Treasury. This bill will be capitalized at the monetary policy rate reported by the BCRA. Financial institutions will be able to purchase LeFis daily, and sell their holdings to the BCRA in whole or in part, ensuring that the mechanism adjusts liquidity to the needs of the economy. This new bill will have a maximum term of 1 year and will only be traded between financial institutions and the BCRA. The LeFi will be traded at technical value and will be excluded from the cap set in the regulations on Lending to the Non-Financial Public Sector.

With the migration of BCRA’s reverse repos, the National Treasury will bear the financial cost of the surplus of pesos. To this end, the Ministry of Economy will make a deposit with the BCRA to cover the financial cost incurred by the BCRA in managing liquidity through LeFis.

This is another step forward in the process of restructuring the BCRA’s balance sheet, reinforcing the commitment to continue reducing the sources of issuance that adversely affect monetary programming.

July 11, 2024