Monthly Monetary Report

Monthly report on the evolution of the monetary base, international reserves and foreign exchange market.

Summary

In April, the Consumer Price Index (CPI) of the INDEC for March was published, which showed a monthly price variation of 2.3% for the general level and 2.6% for the core component. Estimates and high-frequency indicators from state and private sources monitored by the Central Bank of the Argentine Republic (BCRA) indicate that core inflation in April would have remained high, although lower than those of March.

In recent weeks, international conditions, added to some local factors, generated a situation of instability in the foreign exchange market. The initial decision of the Central Bank of the Argentine Republic (BCRA) was to resort to foreign exchange interventions to contain the depreciation of the peso, with the aim of limiting volatility and guaranteeing the disinflation process. At the same time, there was a decrease in the BCRA’s non-monetary liabilities: mainly LEBAC and LELIQ. As the days went by, and in the conviction that the movements observed reflected a deeper shock on emerging markets and
not an isolated episode of volatility in the financial markets, the BCRA reduced the magnitude of its interventions and allowed a greater slide in the exchange rate.

In turn, the BCRA’s Monetary Policy Council met outside its pre-established schedule on April 27 and resolved to increase the monetary policy rate, usually the center of the 7-day pass corridor, by 300 basis points to 30.25%. Interest rates in the interfinancial lending markets remained at values close to the center of the corridor established by the BCRA in the course of April and at the end of the month they were aligned with the new level set. Prior to the publication of this Report, the Monetary Policy Council decided to increase its monetary policy rate again on two occasions, by a total of 975 basis points to 40%, in order to preserve the disinflation process. It also decided to expand the width of the corridor and the rate of 7-day active passes went to 47%, while that of passive passes of the same term stood at 33%. The exceptional breadth of the corridor was intended to allow the yield on domestic assets to move more freely to respond to high-frequency shocks.

Passive interest rates remained stable at levels similar to those they have been registering since the beginning of this year. The TM20 rate – interest rate for fixed-term deposits of $20 million or more, with a term of 30 to 35 days – of private banks averaged 23.3% in April, while the BADLAR – interest rate for fixed-term deposits of $1 million and more, with a term of 30 to 35 days – of private banks averaged 22.8%.

Lending rates showed a mixed behavior, although that of the most traded line – mortgages in UVA – remained unchanged compared to March, averaging 4.7%. In the case of personal loans, the rate of loans granted with fixed yield increased 0.1 p.p. compared to March (averaging 40.2%), while that of those granted in UVAs decreased 0.3 p.p. (to 10.2%). In both cases, the changes with respect to the previous month do not indicate generalized movements, but were the result of changes in the participation of entities that operate with different levels of rates.

Considering the balances in real and seasonally adjusted terms, Private M3 decreased 0.2% compared to March, after an increase in private sector time deposits, partially offset by a fall in private M2, composed of both demand deposits and current deposits held by the public.

In order to encourage savings in the local financial system, given its importance as a source of financing for longer-term loans (in particular, those denominated in UVAs), the BCRA ordered a reduction in the minimum term of time deposits in UVAs, from 180 days to 90 days.

Loans to the private sector continued to grow in real and seasonally adjusted terms. In April, total loans, pesos and foreign currency, increased 2.1% and in the last 12 months accumulated a real increase of 26.3%. The monthly growth of loans in local currency was 2.1%, with a real year-on-year variation of 20.4%. In addition to the boost from mortgage loans, this month was added that of financing granted through advances.

The growth rate of mortgages stood at 7.2% in real terms and adjusted for seasonality. In nominal terms, the line presented an increase of 7.8%, accumulating a year-on-year increase of more than 150%. UVA financing accounted for about 90% of loans granted to individuals. Thus, since the launch of this instrument, approximately $101,200 million of mortgage loans have been granted in UVA.

Loan growth exceeded that of deposits and ample bank liquidity in local currency (measured as the sum of cash in banks, the current account of entities at the Central Bank, net passes with such entity and the holding of LEBAC and LELIQ, as a percentage of deposits in pesos) decreased 0.6 p.p. compared to March. reaching 42.3%. The reduction was made up of the fall in LEBAC holdings.