Monthly Monetary Report

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

Summary

• In August, the national consumer price index (CPI) of the INDEC for July was published. As expected, due to the increase in regulated prices, inflation in July was higher than in June, reaching 1.7%. On the other hand, the high-frequency indicators monitored by the BCRA suggest that the disinflation process continues and that inflation in August would have been lower than in July. However, core inflation is above the values sought by the BCRA. In this scenario, the BCRA decided to keep its monetary policy rate, the center of the 7-day pass corridor, unchanged at 26.25%. Thus, the 7-day pass corridor remained at 25.5%-27%.

• The BCRA absorbed liquidity through open market operations. It sold LEBAC on the secondary market, generating a monetary contraction that exceeded the expansion associated with the partial renewal of the month’s maturity. The yield curve of the LEBAC ceased to have a negative slope, with an increase in interest rates on longer-term securities of 190 basis points between the end of July and August.
• While interest rates in the inter-financial lending markets moved within the BCRA’s pass corridor, passive interest rates showed upward trends, with average monthly values 0.5 p.p. higher than those of July.

• Term placements in pesos by the private sector continued to show a differentiated behavior according to the amount stratum, with better relative performances in the second half of August. On the one hand, deposits of less than $1 million, which remained stable during the first half of August, resumed the upward trend for the rest of the month. On the other hand, deposits of $1 million and more interrupted the downward trajectory that they had been showing since June in the second half of August. However, the average monthly balance of these placements decreased when considered in real terms and seasonally adjusted
. On the other hand, the real and seasonally adjusted balance of private M2 increased again.

• The main source of money creation was the growth of loans to the private sector. In August, the real balance of total loans, in pesos and in foreign currency, grew 2.5% while that of loans in local currency increased 1.7%. The most dynamic lines continued to be those of documents, personal loans and those granted with real guarantee. Among the latter, mortgages continued to accelerate their growth rate, encouraged by those denominated in UVA, which accounted for 85% of mortgages granted to families. Since the launch of this instrument, approximately $20,090 million of
mortgage loans have been granted in UVA. In the last 12 months, mortgage loans accumulated a nominal increase of 51.2% and pledges grew 67.3%.

• The funding of the granting of loans came mainly from the decrease in the balance of passes of financial institutions in the BCRA. Thus, bank liquidity in local currency (measured as the sum of cash in banks, the current account of the entities at the Central Bank, the net passes with such entity and the holding of LEBAC, as a percentage of deposits in pesos) decreased 0.8 p.p. compared to July, to 41.9%