The recent launch of Stage 3 of the economic program included the relaxation of currency restrictions and the adoption of a floating exchange rate backed by the BCRA’s balance sheet cleanup. In this context, the monetary aggregates scheme was improved to reinforce the monetary regime.
The transition to a new foreign exchange regime occurred without any shocks, as evidenced by the following:
1. Stable exchange rate and interest rate in the monetary market.
2. Decreased financial US dollar exchange rate and no gap with the official exchange rate.
3. Falling trend of inflation during the transition.
4. Anchored inflationary expectations of the private sector, in line with the ongoing disinflation process.
The following measures seek to consolidate these achievements and ensure greater predictability in the monetary balance.
I. Measures to reinforce international reserves
1. Auction of government securities subscribed in US dollars
The Secretariat of Finance of the Ministry of Economy announced that the schedule for the auctions of government securities in 2025 will include direct subscription in US dollars. This option will be available starting in June 2025 for placements with a maturity greater than one year, up to a monthly limit of USD1,000 million.
The minimum holding period was removed for non-residents who invest through the Free Foreign Exchange Market (Mercado Libre de Cambios, MLC) or in primary issuances of the Ministry of Economy with a maturity greater than six months.
2. Reverse repos in US dollars with international banks
As announced at the beginning of Stage 3, the BCRA called for the second auction of the reverse repo program with international banks. After the initial placement of USD1,000 million in December 2024, the program established an additional issuance of up to USD2,000 million. This auction is scheduled for June 11, 2025.
II. Measures to strengthen the monetary regime based on the control of monetary aggregates
1. Reduction of the BCRA’s contingent monetary liabilities
The BCRA will continue removing potential sources of monetary expansion, cleaning up its balance sheet and strengthening the control of monetary aggregates. To that end, on June 10, 2025, the BCRA will repurchase put options on Treasury securities held by banks supplementing the transaction carried out on July 18, 2024.
In line with the monetary policy focused on monetary aggregates, this measure ensures greater control over the amount of money and reinforces predictability regarding inflation reduction by eliminating potential sources of discretionary monetary issuance.
2. Additional absorption of monetary liabilities through BOPREAL In order to move forward to solve inherited foreign exchange imbalances, the BCRA will offer BOPREAL Series 4 to institutions to meet foreign liabilities related to debts incurred or dividends obtained before 2025 as well as commercial debts before December 12, 2023. Successive auctions will be carried out starting on June 18, 2025, under conditions similar to those of the previous series.
3. Monetary fine-tuning after the maturity of LeFIs
Fiscal liquidity bills (LeFIs), which served the purpose of eliminating BCRA´s remunerated liabilities during Stage 2 of the stabilization program, mature on July 17, 2025. As from July 10, 2025, the BCRA will stop offering financial institutions the possibility of subscribing LeFIs.
At first, LeFIs absorbed bank liquidity surplus, transferring the financial cost to the National Treasury. Banks used LeFIs to manage liquidity during the transition to a monetary framework aimed at eliminating inflation and boosting credit to the private sector. As this monetary surplus was reduced, the stock represented minimal transactional balances.
However, the placement of LeFIs at predetermined rates without secondary market trading recently began to attract balances that, in an orderly monetary system, could be channeled to conventional liquidity alternatives. Going forward, banks may redirect these balances to other uses, such as their current accounts at the BCRA, securities issued by the Ministry of Economy, private securities-backed transactions or other instruments.
Before they mature, the Ministry of Economy and the BCRA will exchange the stock of LeFis in the BCRA’s assets for a portfolio of short-term securities in pesos (LECAPs) traded on the secondary market. As established in Section 4 of its Charter, the BCRA may participate in the secondary market for short-term government securities every time it deems it necessary to contribute to the smooth functioning of the capital market.
This fine-tuning consolidates a conventional framework to control monetary aggregates by removing the idea of a monetary policy rate, which is elated to inflation targeting schemes. Instead, the interest rate will be endogenously determined by the market, in line with a regime centered on monetary aggregates.
4. Adjustments to reserve requirements to reduce distortions and strengthen monetary control
The BCRA will continue to strengthen the financial system’s prudential regulations by gradually increasing minimum cash requirements for items that cause higher volatility, hinder sustainable development and make the credit to the private sector more expensive.
Taking into account the evolution of monetary aggregates, the impact of the measures announced, and the seasonality in money demand, the BCRA will determine the appropriate time to unify the minimum cash requirement applicable to interest-bearing accounts, regardless of the institution involved.
