The good news came from the February fiscal result, which showed, once again, financial surplus. The financial result reached $338,112 million. For its part, the primary result was $1,232,525 million. In real terms, the variation in total revenue was -6.3% year-on-year. While the real variation in primary spending was -36.4% year-on-year.
Taking the annual accumulated, Income fell 2.5% in real terms and primary expenses fell by a greater amount (38%). It was also decided postpone transportation increases (36.6% on train and bus tickets since April) and gas, in order to avoid an inflationary rebound. Likewise, it was decided open imports of basic basket products to improve competition. The BCRA will reduce the payment period for imports of food, beverages and cleaning, care and personal hygiene products, going from a payment scheme in 4 installments of 30, 60, 90 and 120 days to a payment period in a single installment after 30 days. Also, it was established to suspend, for 120 days, the collection of additional VAT and income tax on imports of these products and medicines.
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For its part, the inflation of February had a record of 13.2% (276.2% year-on-year). It was lower than expected (15%) and marked a significant slowdown compared to January’s figure (-7.4%). Regulated was once again the category with the highest monthly increase (26.6%). The Core CPI (12.3%) and Seasonal CPI (8.7%) were below. Something to be expected since the new administration began to correct the relative price structure, adjusting certain very overdue items. Something essential, on the other hand, for a stabilization plan. Some goods began to correct, such as fuel, public transportation, prepaid cards, clothing, among others. In turn, the type of official exchange rate, which had been corrected in December and January, is beginning to fall behind. Others worsened their relative position, such as electricity, gas, education and formal private salaries. Fruits, cars, medicines, coffee, tea and grass deepened their advancement.
From the financial level, The BCRA decided to reduce the reference interest rate (repos), from 100% to 80% TNA. It eliminated the minimum fixed term rate, going from 110% to oscillating between 70% and 75% of TNA. The rationale behind the measure is the impact on the reduction of the quasifical deficit, since it implies a reduction in the effective monthly repo rate from 8.6% TEM to 6.8% TEM. By transitive nature, a reduction in the endogenous monetary issue (due to interest on repos) close to $530,000 million per month. It was a decision coordinated with the Treasury, which had announced the tender for the exchange of short-term securities to remove the wall of maturities for later years.
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The intention is to shift placements in the BCRA towards Treasury holdings. The Ministry of Finance announced that it had an acceptance of the exchange in the order of 77% of the total of the securities that matured in 2024. Thus, $42.6 billion were cleared, of a total of $55.3 billion. Considering that total, the private sector exchanged 17.5% of its holdings and the public sector did so almost entirely. Possibly, The lack of private acceptance has to do with the mismatch in terms and the lack of offer of puts (requested by banks in previous tenders and executed for $4.4 billion since the President’s inauguration). The stretching of the maturity of bonds in pesos went from 0.46 to 3 years and the financial burden meant an interest saving of $555,000 million.
In summary, the correction of regulated and joint ventures has been closing above 20% monthly. The realignment of relative prices is far from over and the risk is that a second round of adjustments will be necessary (if those who corrected “get out of adjustment” again) and that those still ahead will present downward resistance.
Apart from not accelerating the current pace of crawling, the chances increase that the BCRA will have to make another discrete adjustment to the official exchange rate, which would put upward pressure on internal prices.
Federico Pablo Vacalebre is a professor at the CEMA University