Argentina seizes monetary issue to purchase bonds

The Central Bank of the Argentine Republic (BCRA) continues stepping on the accelerator in the purchase of Treasury bonds. To do this, he issues pesos that he ends up placing on the market.

In a context of accelerating inflation and latent exchange rate tension, market analysts find such a monetary issue worrying.

However, there is some expectation that if the Treasury begins to succeed in the tenders, the pressures on the BCRA to issue pesos and buy bonds may decrease.

In the last rounds, the BCRA has been buying Treasury debt in pesos in the secondary market with greater intensity, especially in the days prior to last week’s Treasury tender.

This is done with the aim of keeping the debt market in pesos stable and paving the way for the Treasury to make its bids satisfactory.

It is estimated that the BCRA bought more than 270,000 million Argentine pesos during the past week (around 1,500 million dollars) and that it continued the purchase of bonds during the current week.

The strategy of buying Treasury bonds began during the administration of former Economy Minister Martín Guzmán in June and July, when at that time, the local currency debt market was going through a major crisis.

At that time, the BCRA came to issue more than 1.3 trillion Argentine pesos (around 7.4 billion dollars) during last June and July to buy bonds in pesos and although the volume of purchases has decreased since then, the strategy has been maintained.

During the fourth quarter of this year, the BCRA already bought debt in pesos for 696,000 million (almost 4,000 million dollars), that is, almost half of what it had bought during the debt crisis in pesos in June and July.

Facimex Valores analysts highlighted at the beginning of the week that BCRA purchases escalated in recent rounds and remain an important driver of monetary issue.

“This is a strategy that cannot be sustained indefinitely, since at some point it will be necessary to see the market willing to roll over to 2024,” the company warned.

With a similar vision, Diego Martínez Burzaco, Inviu’s head of strategy, warned that the strategy of buying bonds in pesos is not sustainable in the medium term.

“Every purchase implies more monetary issue that later has to be sterilized and that would seem to be a clearly not genuine investment. This occurs within the framework of an attempt to adjust the fiscal balance and stabilize the macroeconomy. It will be a very uphill task since next year, which is electoral, history shows that politics ends up prevailing over economic rationality”, he commented.

From the trading desk of a bank, they warn that issuing more pesos could generate more exchange rate tension in the future. “The issuance of pesos to buy debt in local currency continues to be a source of greater issuance that, ultimately, ends up causing higher exchange rate and inflationary pressures going forward. The purchase of bonds has a limit and is impracticable as a strategy for the medium term”, they warned.