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Banking

Argentina: Central bank turns counterparty on debt swaps

The Argentine central bank will shortly start operating as a counterparty in the local swap market traded at the country’s main fixed-income exchange, the Mercado Abierto Electrónico.

Argentina has weak long-term capital markets and the central bank will start intervening in the swap market within the next two months as a way to stimulate greater medium- and long-term commercial lending at fixed rates.

Eventually, it wants to improve the liquidity in maturities of up to five years and a combined sum of up to Ps12 billion ($4 billion).

MAE will trade standardized interest rate contracts, whereby one intervening bank – at first the central bank – will pay on a monthly basis its financial counterparty a fixed interest rate in exchange for a 30-day Badlar, time deposit rate. The difference between the rates is paid or received at each maturity date.

Alberto Saravia, chief executive of Saravia Financial Management, a local fund manager, says: "Swaps are a new instrument at MAE and the active participation of the central bank is necessary for several months until the member banks gradually begin acting on both sides of the marketplace.

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