Twice Monthly November 16th, 2017

Midweek  

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Twice Monthly November 16th, 2017

In last Tuesday's auction the Central Bank ratified the interest rates that were recently traded in the secondary market. Thus, the yields in the primary market ranged from 28.75% in the short end to 29.60% in the long end of the curve.  Since last month's auction the hike in yields reached 250 bps. As usual since March, renewals of AR$ 333 billion Pesos fell short of the amount coming due of ARS 379 billion Pesos (banks use the short term Lebac as a synthetic for the reverse repo and collect part of the amount coming due to manage their monthly reserve requirement position). We keep unchanged our forecast for the monetary policy rate (the midpoint in the Central Bank repo corridor) to stay at 28.75% until March 2018 and from then on we foresee the CB would cut interest rates up to 18.75% by the end of 2018. The Lebacs yields will mimic the movement and will go down in tandem. If the cuts are confirmed the ex-ante real interest rate will be positive by nearly 5 percentage points as we estimate inflation in 2019 to approach 13%.