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ECONOMY | 21-10-2020 18:27

Argentina is slowly shifting its monetary policy instrument

Argentina is changing its monetary policy, Bloomberg reports, uniting two different benchmark rates of interest in a bid to reduce the cost of eliminating excess peso liquidity on the market.

Argentina is changing its monetary policy, Bloomberg reports, uniting two different benchmark rates of interest in a bid to reduce the cost of eliminating excess peso liquidity on the market.

Central Bank monetary policy set its benchmark as somewhere between the repo and Leliq interest rates, or around 33 percent, according to directly informed sources which asked not to be identified.

Last Friday, in a telephone conference with investors, Guzmán said that the government is seeking to bring together the different interest rates into a single benchmark of 32-33 percent, according to a person who participated in the call.

When asked to comment on the situation, a Central Bank spokesman said: “That is part of a strategy to harmonise interest rates.”

Argentina is undergoing a profound exchange rate crisis. In recent weeks the Central Bank has been upping its repo rates and lowering Leliq, saying that this will make monetary policy more efficient and reduce the cost of absorbing excess liquidity.

Favouring repos

The monetary policy-makers are inducing the banks to place their excess liquidity in 1-7-day repos at the same time they are discouraging the use of the Leliq rate, the current official benchmark, said the informed sources.

To that end the Central Bank began as from October 1 to raise the repo rates and lower the Leliq, also reducing the Leliq stock allowed banks. From then on the banks have increased their repo stock by 20 percent to 157 billion pesos (US$2.2 billion), while reducing by seven percent their Leliq stock, now 123 billion pesos (US$1.6 billion).

On October 15 the Central Bank increased its one-day repo interest rate to 30 percent, an increase of 11 percentage points from October 1, and its seven-day rate to 33 percent, also reducing the Leliq rate to 36 percent.

– TIMES/BLOOMBERG

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by Ignacio Olivera Doll & Jorgelina do Rosario, Bloomberg

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