Monthly Monetary Report

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

Summary

• In December, the average balance of total means of payment (M2) reached $173,200 million, with a year-on-year growth of 18.9%. Thus, as indicated in the presentation of the 2009 Monetary Program to the Senate, the M2 was located near the center of the range foreseen in the Monetary Program. In the last month, M2 showed a growth of 8.6%, mainly associated with the seasonal increase in the demand for transactional money at the end of each year. For its part, private M2 showed an annual growth of 8.4% and stood at $143,500 million, below the range foreseen in the Monetary Program. This deviation was due to a reduction in the demand for transactional money generated by the external shocks that occurred during the course of the year, which had an intensity and magnitude not foreseen at the time of preparing the 2008 Monetary Program. The abrupt deterioration of international markets led to a change in the composition of the investment portfolio of economic agents, which resulted in a strong and widespread outflow of capital from emerging economies.

• In 2009, the Central Bank aims to continue providing a framework of predictability for the development of economic activity. Thus, in addition to maintaining the scheme of goals and estimates foreseen in 2008, it adds quarterly estimates of private M2 both for 2009 and for the 12-month scenarios that will be published in due course, at the end of each quarter. The targets of the 2009 Monetary Program foresee growth in aggregate M2 in the range of 8.7%-17.8% year-on-year in December. and for private M2 between 9.8% and 18.9% in December.

• The recent pension reform led to a change in the ownership of deposits, mainly fixed-term deposits, which were in the portfolio of the Retirement and Pension Administrators. Adjusting the balances for this change in ownership, private deposits advanced 1.6% in December, while public sector placements fell by 9.8%, mainly associated with the use of resources to acquire foreign currency to meet the maturities of public debt in foreign currency.

• The liquidity of financial institutions – defined as the sum of cash in banks, current accounts of banks in the BCRA and net passes to the BCRA – as a percentage of deposits in pesos averaged 20.8% in December. This level was 0.5 p.p. higher than in November and one of the highest in recent years. Considering the holdings of LEBAC and NOBAC by the entities, the liquidity ratio stood at 36.3%. On the other hand, the quarterly minimum cash position December 2008 – February 2009 accumulated at the end of the first month a surplus of 1.7% of total deposits in pesos.

• Given the scenario of solid liquidity conditions, short-term passive interest rates stopped the upward trend they had been showing since September. In particular, the average BADLAR rate for private banks fell 2.4 p.p. compared to November, while the interest rates paid by private banks to retail placements (for amounts below $100,000) remained stable. The interest rate in the interbank market also gradually decreased after the highs it had reached at the beginning of November and, on average, fell by 1.1 p.p. compared to the previous month. Meanwhile, interest rates on shorter-term loans also showed reductions compared to November.

• Loans in pesos to the private sector grew 0.5% ($550 million) in December, driven mainly by mortgage loans and credit card financing. With the same period of the previous year, they reflected an increase of 22.3%.