Click here to view the Monthly Monetary Report of June. The closing date for statistics in this report was July 6th, 2016. All figures are provisional and subject to review. This report discusses the performance of the main monetary variables, such as means of payment, cash held by the public, loans, deposits, interest rates and international reserves (all of them being subject to change in valuation). You will also find here a statistical annex with the position of each of these variables over the past few months.
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Summary of the report*:
• The policy followed during the disinflation period aims at setting an expected positive real interest rate so that inflation levels drop as anticipated. According to the Monetary Policy plan submitted in April, this means reaching monthly inflation rates close to 1.5% in the last quarter of 2016.
• In June, the National Institute of Statistics and Censuses (Instituto Nacional de Estadística y Censos, INDEC) released once again a reliable consumer price index (CPI) for the City of Buenos Aires and the Greater Buenos Aires Area. According to this index, in May, prices increased by 4.2% compared to April, as a result of a weighted average between 2.7% recorded for core inflation, and rises of 8.7% and 4.3% in regulated and seasonal prices, respectively. Taking into account that the CPI from INDEC has greater coverage, the Central Bank of Argentina will use it to evaluate the progress of inflation and the outcome of its monetary policy, as long as no other national price index is available. However, it will continue to monitor other price information sources as well, both from the public and private sectors, on a monthly and weekly basis.
• The Central Bank of Argentina considers that during June the disinflation trend evolved as expected, moving towards the targets set for this year. May’s core inflation increase recorded for the City of Buenos Aires was not enough to change that trend which was actually reinforced by other robust indicators that revealed a slowdown for June. In addition, consultants expect that inflation for the rest of the year will follow a disinflation trend similar to that sought by the Central Bank. The monetary authority will continue to exercise caution by maintaining its contractive bias and, in particular, monitoring the underlying inflation or inflation expectations so as to ensure that there will be no significant or lasting change in the downward trend.
• Taking into account all available information, in June, the Central Bank of Argentina reduced its main benchmark interest rate for LEBAC bills with a 35-day maturity, on four occasions, for a total of 3.5 p.p.; reaching 30.75% at the end of the month. In turn, the interest rates for its repo transactions dropped by the same figure. It is worth noting that, in order to analyze the monetary policy bias, the nominal interest rate for each term should be compared to the estimated inflation for the period in question. In particular, during a disinflation process, the interest rate of LEBACs with a 35-day maturity should be compared to the expected inflation trend for the same period, dismissing temporary factors.
• In the money market, shorter-term interest rates—mainly those traded in the call money market and those used for financings arranged through overdrafts up to 7 days—showed a downward trend in line with the drop in the policy rate throughout the month, and always within the interest rate band established by the Central Bank in the repo market. In turn, deposit rates were also in line with the evolution of the interest rate of LEBCs with a 35-day maturity.
• In June, bank reserves increased as a result of a higher demand for minimum reserve requirement ratios for deposits in pesos. Thus, the rise recorded in the balance of financial institutions’ current accounts with the Central Bank explained about 70% of the monthly increase in the monetary base. Central Bank's purchases of foreign exchange, both from the private and public sectors, were the main source of monetary creation that allowed to cope with a greater demand for base money. Part of the monetary expansion described was sterilized mainly through LEBAC bills.
• In a period in which loans in pesos channeled to the private sector continued evidencing a slowdown, increased deposits in pesos enabled financial institutions to build up the higher reserve requirement ratio and to increase their liquidity in LEBAC bills. Thus, the broad liquidity ratio in local currency (measured as the sum of cash in banks, institution’s current account with the Central Bank, net repos with such Institution, plus LEBAC holdings, expressed as a percentage of deposits in pesos) increased by 2.9 p.p. against May, reaching 40.5%.
• Central Bank’s purchases of foreign currency, combined with the revenue from debt issues, mainly from provincial governments, enabled international reserves to grow by US$ 336 million in June, ending the period with US$ 30.507 billion. On another note, the Central Bank paid in full all future dollar contracts that had been arranged in 2015. Thus, its balance sheet continued consolidating by increasing its liquid assets in foreign currency and settling these contracts.
(*) Unless otherwise stated, figures to which reference is made are monthly averages of daily data.
July 7th, 2016