Argentines Clamor for Pesos, Leading Banks to Tap Repo Market: Shock Therapy
(Bloomberg) -- President Javier Milei wants Argentines to use more dollars. But for the first time in years, his countrymen are clamoring for pesos.
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A surge in demand for the local currency in recent months has left commercial banks needing access to pesos, leading Argentina’s central bank to revive a liquidity window that hasn’t been tapped since the 2018 financial crisis.
Activity in the repo market started increasing in September and skyrocketed earlier this month, when banks borrowed more than $1.6 billion in one-day term loans, central bank data show. The demand for peso loans is an early sign of a tepid economic recovery, though Argentina is still mired in recession. Milei, who had radical plans when he took office, is facing a complicated reality.
Declining interest rates, which fell from a record high of 133% to 40%, are fueling the demand for credit. The ratio of consumer loans to deposits increased 64% this month, up from 42% at the end of 2023, according to 1816 Economía & Estrategia, a local consulting firm.
Consumers are seeking out loans as banks offer mortgages again, the first time since 2018, said Gaston Rossi, a director at Banco Ciudad in Buenos Aires. They are also tapping bank funding because interest rates are low, he said.
Still, bank credits — at 12% of gross domestic product — at the end of 2023 remained low compared to other countries in the region, for example Brazil, where it stood at 72% of GDP, according to data by the World Bank. “Credit is recovering from the fifth basement,” Rossi says.
The central bank reopened its liquidity window to ensure that banks aren’t forced to unwind their holdings of Treasury debt or raise deposit rates, which could result in higher borrowing costs for consumers.
A spokesperson for the central bank said active repo loans are part of the process of normalizing the financial system. A spokesman for Banco Galicia, the country’s largest private lender, said it prefers to tap the repo line so that it can gradually sell bonds and other notes.
Argentines’ appetite for loans has been on rise since the central bank cut interest rates, said Fernando Milano, chief business officer at Banco Supervielle. His bank accelerated its lending activities sincer the beginning of the year. “We expect this to continue in the future,” Milano said.