1 week Ago By Facundo Iglesia
Argentina’s Central Bank confirmed that it arranged a US$1 billion repo with five international banks, using its BOPREAL dollar-nominated securities as collateral. The repo’s maturity is in two years and four months. In a communiqué, the monetary authority said the operation constitutes a new “tool” to use its international reserves to intervene in the foreign exchange market.
The Central Bank added that its efforts to improve international liquidity are a necessary condition for “completely lifting, without financial or economic disruption, the exchange restrictions and other regulations implemented in previous years.” Those controls are collectively known as the “cepo,” Spanish for clamp. Repos, short for repurchase agreements, are a form of short-term borrowing mainly used by governments.
They involve one market participant — in this case, the Argentine government — selling a security to another, then buying it back at a higher price at an agreed future date. The repo auction was held on December 27, and the Central Bank received bids for US$2.85 billion, almost three times the amount tendered.
“Given the excess demand and the favorable evolution of its international reserves, the Central Bank opted not to take a larger amount,” the monetary authority said in a statement, hinting that it has no immediate plans for any more such deals. The Central Bank will pay an interest rate equivalent to the SOFR-USD (the cost of borrowing cash overnight collateralized by United States Treasury securities) plus a spread of 4.75% — a yearly 8.
8% fixed rate. A Central Bank source told the Herald that the banks involved have experience doing repos, they have a credit line with Argentina’s Central Bank, and that negotiations took months, as they were waiting for market conditions to allow Argentina’s country risk to fall. The Central Bank said the repo deal would increase the monetary authority’s “flexibility to mitigate imbalances between foreign exchange supply and demand in the local foreign exchange market” — that is, selling dollars in financial markets to lower the greenback’s price in the local market.
Net international reserves are around US$8 billion in the negative, according to private estimations. “In this way, the Central Bank reduces the risks surrounding the implementation of its exchange rate and monetary policy goals, and facilitates the anchoring of economic expectations,” the communiqué added..
