The monetary authority hiked the 28-day Leliq rate to 97% from 91% following the worse-than-expected CPI print for the month of April and the worrisome inflationary outlook (8.4% mom, 108.8% yoy).
At the same time, the central bank increased the regulated minimum interest rate paid on time deposits to 97% for deposits made by individuals of up to 30 million pesos from 91%. For the rest of deposits (including corporates), the interest rate was set at 90%. Finally, the one-day repo rate was also increased by 600 bps, to 91%.
The monetary authority tries to keep attractive peso-denominated assets and contain the gap between the blue-chip swap and the official FX rate (close to 100%). We think that even with this hike, real returns will likely remain in negative territory, as most analysts (including us) expect a new acceleration of inflation in May. The central bank suggested that more interventions in the exchange rate markets are likely despite exhibiting negative net international reserves of around USD 1.0 billion.
In our view, these measures are just short-term fixes and do not address the main problem, which is the monetization of an increasing fiscal deficit. In the meantime, authorities continue to negotiate with the IMF a new program with front-loaded disbursements. The possibility of a disorderly depreciation and further inflation acceleration before elections is high.
Juan Carlos Barboza
Diego Ciongo