The Mauricio Macri administration has been talking for some time about defusing the time-bomb of Lebac Central Bank bonds (which has reached up to a trillion pesos at interest rates of 45 percent or more) but this week – with an International Monetary Fund ( IMF ) monitoring team under Roberto Cardarelli in town – they set about reducing the stock in earnest.
Of the 528.7 billion pesos up for renewal last Tuesday, the banks (who are supposed to be the sole Lebac holders by the end of the year) held back 200 billion on the orders of the Central Bank, which also announced that it would only be renewing 230 of the remaining 330 billion.
In the end only 201.7 billion were renewed out of a total offer of 213.6 billion pesos, while the fading demand was reflected in lower interest rates, falling from a peak of 49 percent on secondary markets to 45 percent.
Since replacing Federico Sturzenegger as Central Bank governor in mid-June, Luis Caputo has shown a far more aggressive attitude towards dismantling Lebacs than his predecessor, who considered them necessary for “sterilising” peso liquidity, although he also recognised the dangers of snowballing interest.
Among the falling number of investors who did maintain their interest in Lebacs, no less than 86.3 percent opted for the shortest possible term with renewal next month.
By way of contrast, the longest term – the Nobacs, running for a full year and reserved for banks – was declared vacant despite the banks making offers of almost 12 billion pesos.
With the banks thus blocked, market experts forecast that the Lebacs would lose liquidity since investment funds were unable to co-operate with financial institutions.
Between the 200 billion pesos held back by the banks and the renewal shortfalls, it is calculated that a stock still close to a trillion (976.78 billion pesos, to be more exact) was reduced by a third in just one day.
Since there is a danger of all pesos disconnected from Lebacs chasing a dollar which continued to climb beyond 30 pesos last week, the Central Bank was obliged to find alternatives. Here the big innovation was to offer the previously dollar-linked Letes Treasury bonds in pesos in terms of 100- 200 days. The interest rates for these are expected to bottom out at 36-38 percent. These bonds are issued by Nicolás Dujovne’s Treasury Ministry, not the Central Bank.
Meanwhile Central Bank reserves were reported to be US$ seven billion down in little more than two months since the IMF agreement – last Tuesday alone, US$ 366 million had to be sold to absorb the pesos not returning to Lebacs. Yet boosted by the first tranche of US$ 15 billion from the IMF stand-by on June 22, Caputo wants to use more reserves in market intervention to accompany his more agg ressive pol ic y towards dismantling Lebacs.
Almost half that US$ 15 billion has already gone on Central Bank dollar sales.