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BCRA Announces the second stage of the LEBAC Bills Settlement Schedule

In line with the objectives established on August 13, 2018, the Central Bank of Argentina (BCRA) announces that it is reaching a new stage in the strategy followed to fine-tune its monetary policy instruments. This strategy meant to gradually reduce the LEBAC bills stock which today reaches about ARS600 billion (ARS600,000,000,000). Out of which 25% is held by financial institutions and the rest is in the hands of non-bank institutions such as mutual funds, companies, individuals and non-residents.

As reported in due time, once this process is over, the stock of instruments issued by the BCRA will be significantly lower than at present and will solely be held by banks of the domestic financial system. This will improve the effectiveness of monetary policy to fight inflation, encourage the development of the financial system and strengthen our economy.

The measures to be implemented are the following:

1. In the next auction that will take place on 9/18/2018, when an amount of around ARS300 billion held by non-bank participants falls due, the BCRA will issue a maximum amount of ARS150 billions of LEBAC bills.

2. Once again, financial institutions will only make bids in LEBAC bills primary auctions on behalf and to the order of non-bank third parties.

3. As for financial institutions, the BCRA will issue one-year term Central Bank Notes (NOBAC notes) and Liquidity Bills (LELIQs). The latter will be used as the BCRA's main channel of sterilization.

4. At the same time, the Ministry of Economy will offer National Treasury Bills that will serve as an alternative investment in pesos for all participants.

5. As it was previously reported, the BCRA and the IMF have agreed upon changes to the program which allows for the availability of resources in foreign currency to ensure the appropriate functioning or the foreign exchange market in the course of the bailout operation. At the BCRA's discretion, it may sell dollars from its reserves at auctions.

6. Finally, the BCRA announces a 5pts increase of the minimum reserve requirements as from Wednesday September 19 with a view to ensuring a smooth process for removing the LEBAC stock; the portion of the requirements so increased may be complied with in LEBAC bills and NOBAC notes. The BCRA expects market liquidity to contract by AR$100 billion on the basis of increased minimum reserve requirements and bank reintermediation (virtually 150 billion pesos), offerings of National Treasury Bills, and foreign currency sales. The liquidity absorption capacity will then be higher than that resulting from the partial repayment of LEBACs.

September 14th, 2018

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