BUENOS AIRES, Nov 17 (Reuters) - Argentina will limit insurance companies’ holdings in short-term central bank notes known as Lebacs, as the government seeks to direct more investment toward activities such as infrastructure, the insurance regulator said on Friday in the official gazette.
As part of the norm, insurers will have to gradually reduce their holdings in mutual funds that hold the notes. By March of next year, they will not be permitted to invest in any mutual funds that hold Lebacs.
“It is indispensible that insurers channel their investments toward productive financial instruments that encourage economic development,” the industry regulator wrote in the gazette.
Lebacs have been one of the most profitable investments in Argentina in recent years as the central bank has kept rates elevated to absorb liquidity and combat stubbornly high inflation.
Earlier this week, the central bank hiked the rate on its 35-day Lebac note to 28.75 percent as data showed consumer prices rose 19.4 percent in the first 10 months of 2017, above the upper band of the monetary authority’s target range for 12-17 percent inflation for the whole year.
President Mauricio Macri’s business-friendly government is seeking to attract private investment in infrastructure projects through a $26.5 billion public-private partnership program.
In a statement, the rating agency Moody’s called the move “negative” for both insurers and mutual funds.
“It is one of the most liquid and profitable instruments in the local capital markets, and it currently represents a significant portion of insurers’ and mutual funds’ investment portfolios,” Moody’s analyst Marcelo De Gruttola wrote. (Reporting by Eliana Raszewski; Additional reporting by Jorge Otaola and Luc Cohen; editing by Grant McCool)