Monthly Monetary Report

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

1. Synthesis

• Growing economic activity continued to drive increased demand for private sector transactional money. In addition, the stable conditions that continued to characterize the local money and exchange markets favored the strengthening of the broader demand for money, which includes those components not directly related to transactional motives, such as time deposits. Thus, the largest aggregate in pesos of the private sector (private M3) registered a growth of 2.1% in August (28.1% y.o.y.).

• Term placements continued to accelerate their pace of expansion, showing an increase of 4.4% ($3,150 million), the highest monthly growth since February 2009 and one of the highest in recent years. Both wholesale placements (of $1 million and more) and retail placements registered significant increases in the month, with increases of $1,800 million and $1,400 million, respectively.

• Private means of payment (private M2) showed a growth of 1.4% (29.5% YoY) in August, while total means of payment (M2) registered a slight decrease of 0.2% (24.2% YoY), reaching an average monthly balance of $217,360 million.

• In a context of increased deposits, in August both the liquidity of financial institutions and the granting of loans to the private sector increased. In particular, banks opted for longer-term
liquid assets to the detriment of the immediate liquidity asset position. In fact, the holding of LEBAC and NOBAC by financial institutions increased by 1.2 p.p. in terms of total deposits in pesos, while passes decreased by 0.7 p.p.. In addition, the assets destined to meet the reserve requirement (cash and current account at the BCRA) averaged 15.7% of total deposits in pesos. Thus, the broad liquidity ratio was 39.8% of deposits in pesos.

• Loans in pesos to the private sector increased by 2.4% ($3,295 million), with a strong boost from financing instrumented with documents and those mainly intended for consumption. Although this increase was lower than in previous months, mainly due to the seasonal decrease in the growth of advances, there is a continuity in the recovery process that began during the third quarter of 2009, and an acceleration in the year-on-year growth rate, which in August reached 24.4%, 2.4 p.p. above July.

• The average interest rates paid on time deposits increased slightly in August, similar to what happened in July. The monthly average of the interest rate paid by private banks in the wholesale
tranche (of $1 million and more) and for deposits of up to 35 days (BADLAR) stood at 10.4%, 0.2 p.p. above the average recorded in July. Meanwhile, the average monthly interest rate paid by private banks to retail placements in pesos (up to $100 thousand) and for the same term, registered a rise of 0.1 p.p., reaching a value of 9%.

• Interest rates charged on loans in pesos to the private sector showed uneven movements, although their monthly variations were limited for all the main lines of financing. For commercial financing
, the interest rate charged by banks in advance operations averaged 18.7%, after increasing 0.2 p.p. compared to July, as did the average monthly interest rate on discounted documents, which stood at 13.4% in August. On the other hand, interest rates on personal loans showed a fall of 0.6 p.p., averaging 28.8% during the month.

• The Central Bank updated the targets of the 2010 Monetary Program (PM 2010) for the second half of the year, adapting them to the higher growth of economic activity. In this way, it avoids conferring a strongly contractionary character on monetary policy that would affect output growth, reducing the supply of credit and job creation. In this sense, a new projection of the Private M2 was calculated, using the same model that was used on the occasion of the 2010 PM, maintaining all the coefficients and arguments originally used, with the exception of real GDP, which was replaced by one that combines the real growth already observed and the best estimate available for the remainder of the year. In the case of demand deposits in pesos of the public sector, the ratios in terms of GDP foreseen in the 2010 PM for the base scenario were maintained. In addition, the amplitude and asymmetry of the range established as a target for the total M2 was maintained. As a result, the year-on-year growth range set as a target for M2 is between 21.8% YoY and 28.8% YoY for September and between 22.4% YoY and 29.4% YoY for December.