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ECONOMY | 01-07-2024 15:35

Argentina officials move to shore up bank support for debt plan

Economy Minister Luis Caputo and Central Bank Governor Santiago Bausili sought to shore up support Monday in a meeting with executives from private banks for a monetary policy pivot announced late Friday.

Senior government officials in Argentina told bankers that they’ll buy up new Treasury notes if necessary to guarantee liquidity in the market as a key part of the second phase of their economic overhaul, according to people with direct knowledge of the matter. 

Economy Minister Luis Caputo and Central Bank Governor Santiago Bausili sought to shore up support Monday in a meeting with executives from private banks for a monetary policy pivot announced late Friday by providing them assurances about the new framework. 

It was among a handful of measures the Milei administration dubbed the second phase of its economic plan. A key piece of the new policy is a plan to swap out notes held at the Central Bank for newly issued Treasuries, a change intended to tamp down annual inflation that’s running above 276 percent by addressing one of the “faucets” of money printing, officials said. 

A Central Bank spokesman said that there were more than 80 bank executives in the meeting. Officials reiterated that the crawling peg of two percent per month and differential exchange rate for exporters will continue. The Central Bank will discuss the new technical details at its board meeting Thursday, people said.

Argentina’s sovereign dollar bonds fell around one cent per dollar while the peso’s parallel exchange rate weakened as much as 2.5 percent up to 1385 pesos per dollar by Monday afternoon. 

Bank representatives from across the industry, including some of the nation’s largest lenders, attended the meeting at the Central Bank’s offices in Buenos Aires. Caputo and Bausili addressed the following: 

– The new short-term notes will be auctioned to banks, allowing them to replace Central Bank repo notes
– The Central Bank plans to issue a new regulation allowing it to buy the notes, at technical value, in the secondary market
– The floating coupon of these notes will be the new monetary policy rate; the term hasn’t been defined
– New debt notes will not be considered “Treasury risk,” allowing the banks to buy the instruments without limits
– The new Treasury notes will pay compound interest, which will be converted into principal, similar to the government’s Lecap bonds
– Treasury will deposit in a Central Bank account the amount equivalent in pesos to the total of debt notes issued
– Banks will not have to pay taxes known as “gross income” on these Treasury notes, which means that they will effectively receive returns of about three percentage points more

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by Ignacio Olivera Doll, Bloomberg

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