Wednesday
October 1, 2014

By one percentage point

Tuesday, August 26, 2014

Central Bank backtracks on interest rates, brings them back up

The Central Bank yesterday backtracked on its decision to hike interest rates two weeks ago, bringing its Lebac and Nobac notes back up by one percentage point.

The rates for note-issuing with returns in 98 days and 112 days were set at 26.86 and 27.37 percent, respectively, the same levels as on August 5.

Economy Minister Axel Kicillof and the monetary authority’s governor, Juan Carlos Fábrega, reportedly have differing positions on the optimal interest rates to both contain inflation while upholding consumption.

Kicillof had seemingly succeeded two weeks ago in pushing for lower rates to reignite consumption, but yesterday’s unexpected upswing apparently indicated that Fábrega’s relative orthodoxy hasn’t been left obsolete. At the same time, it could also be a recognition that something had to be done to vacuum up excess pesos from the economy in order to put a stop to the climb of the “blue” dollar.

The drop in rates two weeks ago instantly led the black market “blue” dollar to surge due to higher market liquidity, as savers seemingly withdrew their fixed-rate deposits and turned to the greenback.

Kicillof has contended that high inflation loses relevance if paired to economic growth, while Fábrega, who arrived on the scene late last year, has lobbied for the government to pump the deflationary brakes by bringing up interest rates to the level of inflation, at the cost of restricting consumption, in turn pivotal to a higher Gross Domestic Product.

According to new regulatory framework implemented in June, interest rates for personal and inventory loans have to remain below the rate for LEBAC notes multiplied by a factor of between 1.25 and two percent, depending on the size of the bank or credit card company.

In a May press release to deny a rift with Kicillof, Fábrega emphasized that economic measures are exclusively determined by President Cristina Fernández de Kirchner. But at the time, the gap between the official and “blue” dollars was slender at 33.4 percent — compared to the 49.6 percent yesterday. The bank’s foreign reserve balance is also no longer coasting on the agri-dollar wave, considering the soy harvest is largely over.

Herald with DyN

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