Argentina: Central bank turns counterparty on debt swaps
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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.

"The bulk of commercial bank funding in Argentina is made up of time deposits of up to 180 days, with a very high concentration in 30-day maturities.

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