Monthly Monetary Report

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

Summary

• Consumer price indices published in August confirmed that the disinflation process continued in July. The general price level at the national level increased by an average of 2% during that month. From now on, the volatility associated with regulated price corrections on the general level of price indices will make it more relevant to focus attention on the evolution of the core component of the price indices. In July, all core inflation indicators showed a monthly slowdown.

• The different indicators followed by the BCRA indicate that in August the slowdown in inflation continued, even without considering the effect of the reversal on the increases in regulated prices. In turn, the published surveys indicate that inflation expectations for the last quarter of the year remain very close to the BCRA’s target for that period.

• Taking into account all this information, in the course of August the BCRA decreased the interest rate of the 35-day LEBAC by a total of 2 p.p., bringing it to 28.25% at the end of the month. Interest rates on its passive and active pass operations were reduced by the same magnitude and at the end of August stood at 24%-33% and 25%-34%, for the 1-day and 7-day segments, respectively. In the first week of September, the BCRA lowered its benchmark interest rate by an additional 0.5 p.p., leaving it at 27.75%; to the same extent it reduced the rates of transfer operations. The BCRA will continue to take anti-inflationary measures to make sure that a sustained disinflationary process will go on to achieve the objective for this year (1.5% monthly inflation rate or lower in the last quarter). Likewise, the monetary authority will conduct its decisions by emphasizing the focus on medium-term expectations, especially those for 2017, in view of the lags presented by the transmission mechanisms of monetary policy.

• Shorter-term interest rates – mainly those operated in the interfinancial markets and those applied to loans granted through advances of up to 7 days – in the money market remained within the interest rate corridor established by the Central Bank in the pass market. On the other hand, interest rates paid on fixed-term deposits in pesos maintained a downward trend over the course of the month.

• The monetary base slowed its year-on-year growth, as the expansion associated with foreign exchange purchases and operations with the public sector were almost completely sterilized through LEBAC placements. In turn, broader monetary aggregates continued to moderate their pace of expansion, as has been the case so far in 2016.

• Loans in pesos to the private sector continued to show limited growth, reaching 0.6% in August. On the other hand, financing in dollars continued to exhibit outstanding dynamism and in August increased 8.9% (US$590 million), totaling an increase of 148% (US$4,310 million) so far this year. Thus, the average balance for the month exceeded US$7,000 million. The growing trend that these loans have been showing is explained by the behavior of single-signature documents, a line strongly associated with foreign trade.

• Deposits in pesos decreased in the month, driven by public sector placements. On the other hand, deposits in pesos from the private sector increased, mainly due to time placements in the retail segment (of less than $1 million), which in August reached a year-on-year growth of 52%.