Friday, October 9, 2020

Argentina cuts Leliq rate first time since March

    Argentina's central bank lowered its benchmark Leliq interest rate for the first time since March but also raised its one-day repo rate in a move it said continues the strategy of unifying the reference rates used in its monetary policy.
     The Central Bank of the Argentine Republic (BCRA) cut the interest rate on Leliq notes by 100 basis points to 37.0 percent, the first cut since March 5, which it said would gradually aligning Treasury rates with the rates used by the central bank in its sterilization instruments.
     Since December 2019, when the central bank began cutting the Leliq rate, BCRA has cut it by 26 percentage points from 63.0 percent and by 18 percentage points in 2020.
     The one-day repo rate was raised by 3 percentage points to 27.0 percent, complementing a 5 percentage point hike in the previous week, the central bank said in a statement on Oct. 8.
     The two rates diverged at the start of the COVID-19 pandemic when the government took action to mitigate the economic and financial effects of the health crises, BCRA said.
     It added the raise in the repo rate and the cut to Leliq rate to align it with Treasury rates will gradually lower the cost of the "quasi-cost of sterilization while increasing its effectiveness in influencing short-term rates in the economy."
     The change in rates is likely to further shift banks' purchases of debt toward Treasury bonds instead of Leliq notes, a move BCRA has encouraged by lowering the amount of Leliq notes banks can hold while raising the amount of Treasury bonds.
     In addition to the change in interest rates, BCRA said it would be more flexible about restructuring plans  submitted by companies that have monthly debt maturities in excess of US$1 million as far as their access to foreign exchange markets.
     On October 1, when BCRA raised the one-day repo rate to 24 percent from 19 percent, it also abandoned its uniform devaluation mechanism of the peso as part of a framework of a managed float in which the daily depreciation rate will be gradually adapted to situation in markets.
     In September Argentina emerged from its ninth sovereign default sine 1816 following an agreement to restructure $65 billion of foreign debt.


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