LELIQs and a new attempt by the CB

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LELIQs and a new attempt by the CB

Third week
January 2018

Last week, the Central Bank announced the birth of a new earning liability exclusive for Banks, the LELIQ or Liquidity Bill. This is a new attempt by the CB to give the monetary policy rate more relevance, since the reverse repo has not been able to impose over Lebacs until now. The main obstacle that the reverse repo faces to become appealing for banks is that it pays the tax on gross income (IIBB), while Lebacs are exempt from it. Since the LELIQ is also exempt from IIBB, it has considerable chances of being more successful than the reverse repo and of attracting attention from banks.

The LELIQ is a 7-day bond auctioned daily, with a secondary market restricted to banks, and that may be used as collateral in reverse repo operations. Until now, the daily auctions have yielded a similar performance to the 7-day reverse repo, but given that they do not have a tax cost, the LELIQ brings together the best of both worlds.