On Tuesday, I talked about how the central bank looked like it was selling dollars out of its international to soak up liquidity and allow it to pay off a lot of the short-term paper it had been using for that purpose. For the past week, monetary policy liquidity operations ahve been at the lowest level of the past few years, excepting a few days in early June when the BCRD realized it was choking off economic growth and used this quick liquidity as a defibrillator.
But now the collected (published) evidence suggests that the central bank is trying, despite allowing all of these lioquidity operations to run off, to tighten monetary policy--and growth might be collapsing again because of it.
The first evidence is interest rates. Published interest rates tend to mix up different things--different loan and deposit maturities, or subsidized and unsubsidized loans. The most consistent and reliable indicator of interest rates is average demandable interbank rates, which is published only monthly. It looks like this:
The central bank normally published a weighted average of interbank rates across maturities on a daily basis; however, they have not published since Tuesday, when the rate jumped to 13.7% from 11.7% the day before (right around the average for the month). Similarly, the international reserves number also seems to be facing some delay. Tighter monetary conditions seem not only to be driving up the interbank rate, but also the peso: it strengthened by about 2% during the month of April, and it is not clear whether this will continue. But it is a further sign of tighter conditions.
Why tighten now, with a national elections just weeks away? This is not entirely clear, though the monetary aggregates (M2 & M3 in particular) have been growing quickly: in the year to April, by about 15%, as opposed to 10-11% in a normal year (to accommodate 4% target inflation + 5% growth + 1-2% financial deepening of the economy). And the central bank has left the very visible policy rate unchanged, perhaps to not draw attention to the tightening.
And the impact? The most remarked-on missing number, however, is the number from economic growth in March. January and February were encouraging 5.6% and 6.2% in February, respectively. Normally, this number is bublished along with the monthly statement of the Monetary Policy Operations Committee (COMA) on the last working day of each month. When the number is really good, it even gets published before the COMA meeting (6.2% number for February was published on March 25, for example). Technical difficulty, or political withholding of a bad number? The central bank isn't saying.
What we do know is that the formal sector payroll number dropped by 2.2% in February from the month before, a contraction far higher than any other in recent years (excluding the pandemic onset). Also, exports were down 12% and imports down by 15% in March. So a weak growth number for March would hardly be a surprise.
We are now just two weeks from Election Day, May 19. The incumbent government can't be pleased with either the economic numbers or the central bank's apparent dedication to fighting inflation, as the opposition is hammering it on various economic issues. It will be an interesting two weeks!