Monetary Policy Report (IPOM)

This quarterly publication aims to analyze the national and international economic situation, evaluate inflationary dynamics and their prospects, and transparently explain the reasons for monetary policy decisions.

Summary

In Argentina, economic activity grew 0.7% seasonally free during the first quarter of 2023. During the second quarter, the transitory impact of the drought on GDP was concentrated, although it is estimated that the activity of the rest of the sectors (non-agricultural GDP) would continue to increase. April’s data were in line with expectations, registering a 36.8% YoY drop in agricultural activity and a 2.7% YoY increase in the rest of the sectors (excluding taxes). In the remainder of the year, the local economy will develop, favored by the rebound of the agricultural sector and the boost of the mining sector.

The inflation rate showed a rise in the second quarter of the year, in a context of increased financial volatility in April that reflected the exchange rate uncertainty accentuated by the effects of the drought on the settlement of foreign currency and public finances. In view of this, the National Government and the BCRA adopted measures aimed at reducing financial volatility and, thus, contributed to containing the acceleration of prices, leading to monthly inflation in June, in a context of moderation in the price of fresh food, at a level of 6%, 2.4 p.p. below the peak of April.

In a context of higher inflation, the BCRA accelerated the pace of raising the monetary policy interest rate to keep real returns on investments in local currency in positive territory and thus minimize the impact of financial volatility on the dynamics of the exchange market and on inflation expectations. Thus, since mid-April, the Board of Directors of the BCRA has raised the interest rate of the LELIQ by a total of 19 p.p. to a term of 28 days, bringing it to 97% n.a. (154.9% y.a.). At the same time, it raised the minimum guaranteed interest rates on fixed-term deposits and tripled the maximum taxable amount to $30 million for those owned by individuals and remunerated at an interest rate equivalent to that of monetary policy.

The BCRA continued to calibrate monetary liquidity, adapting to the macroeconomic situation. In particular, all the factors of variation of the Monetary Base, resulting from the operations of the private and public sectors, contributed positively between March and June. The net increase in liquidity during the quarter in a context of low dynamism in the demand for the Monetary Base required the use of sterilization instruments. Thus, interest-bearing liabilities registered an expansion in terms of GDP of 0.7 p.p. and the Monetary Base registered an average monthly contraction of 4.4% in the second quarter, accumulating a drop of around 30% in the last twelve months to June. Historical evolution of the Monetary Base

En materia cambiaria, el BCRA continuó adaptando la tasa de crawl a un ritmo acorde con la inflación en el marco del régimen vigente de flotación administrada. Así, el tipo de cambio real multilateral registró una suba de 0,1% promedio mensual durante el segundo trimestre, en un periodo en el cual el flujo de divisas se vio particularmente afectado por el impacto de la sequía. Asimismo, con el objetivo de incrementar la oferta de divisas, se restableció el “Programa de Incremento Exportador” para la liquidación de divisas por las exportaciones de soja y se amplió a las Economías Regionales. Bajo este programa se liquidaron divisas hasta fines de junio por unos US$5.400 millones. Por otro lado, cabe destacar que se renovó el swap por 130.000 millones de yuanes por el plazo de 3 años y se inició el proceso de solicitud de ampliación de la activación por un monto de hasta 35.000 millones de yuanes. De manera complementaria, se implementaron diversas modificaciones normativas, orientadas a favorecer una eficiente asignación de las divisas

The consequences of the impact of the drought, whose record magnitude was unforeseen months ago, changed the macroeconomic scenario for this year on which the goals included in the IMF’s Extended Facilities Program (EFP) were outlined. The technical discussions about the recalibration of the program in this new scenario extended the times of the 5th revision of the PFE. This delay dislodged the scheme of payments and disbursements planned with the multilateral credit organization. At the end of June, net payments were made to the IMF equivalent to US$6,922 million, after which the BCRA’s international reserves stood at US$27,926 million as of the 30th of that month, showing a fall of US$11,134 million in the second quarter.

In the coming months, in the context of a more complex international scenario and a record drought that negatively affected the local economy, the BCRA will continue to define its policies in a dynamic and flexible manner. In terms of interest rates, the BCRA will continue to calibrate the monetary policy rate, paying special attention to the past and prospective evolution of the general price level, the level of economic activity and the dynamics of the foreign exchange market, with the aim of tending towards positive real returns, which will allow the consolidation of exchange rate and financial stability. In the same sense, it will continue to intervene in the secondary market of National Treasury instruments in order to avoid excessive volatility that compromises the stability and development of the local capital market. In the area of foreign exchange, the BCRA’s actions will continue to be aimed at preserving adequate levels of external competitiveness and favoring the accumulation of reserves with prudent management of the current regulatory framework. Finally, the financial strategy will continue to stimulate credit intermediation, particularly that linked to productive development through the Financing Line for Productive Investment (LFIP).