Monthly Monetary Report

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

Summary

• In December, the total means of payments (M2) reached an average of $196,870 million (13.7% YoY), once again within the range established in the Monetary Program. M2 registered a monthly increase of 8.8%, mainly associated with the seasonal increase in the demand for transactional money at the end of each year. In the same sense, private means of payment (private M2) were also within the stipulations of the Monetary Program, registering an average balance of $165,740 million (15.9% YoY) and a monthly growth of 7.8%.

• In 2010, the Central Bank will continue to create stable conditions in the local monetary and financial market, through a policy based on the construction of liquidity networks in local and foreign currency and strict control of the expansion of monetary aggregates. Thus, the 2010 Monetary Program maintains the scheme used in 2009 of quarterly targets for the monetary aggregate M2 (and annual target for private M2), and quarterly estimates for private M2. The targets of the 2010 Monetary Program foresee annual growth for the aggregate M2 in the range of 11.9%‐18.9%, and an annual rate of expansion for private M2 in the range of 12.1%‐19.1%.

• Total deposits in local currency increased by 2.4% in the period, due to the increase in placements corresponding to the private sector, which accumulated a growth of 3.7%. As expected, given the strong demand for seasonal liquidity by households and companies observed in December, the increase in total private deposits was explained by the rise in demand loans, which increased by 6.8%. On the other hand, fixed-term deposits decreased in December (0.7%), due to the reduction in balances in the wholesale tranche, while time deposits in the retail segment (placements of up to $1 million) continued to increase.

• The ample liquidity in pesos of financial institutions (defined as the sum of current accounts at the Central Bank, cash in banks, net passes with the Central Bank and holdings of LEBAC and NOBAC) ended December at an average of 37.2% of total deposits in pesos. There was a reduction in the net pass position of the entities, while bank reserves increased, as usual in the first month of the December‐February minimum quarterly cash position.

• Loans in pesos to the private sector once again accelerated their pace of expansion, with a generalized increase in all their lines. In this context, total loans showed an increase in their monthly average of 2.5% ($2,950 million), with a growth of 10% in year-on-year terms.

• The averages of the main short-term passive interest rates decreased compared to the average values of the previous month However, it should be mentioned that this reduction, especially in the wholesale placement segment, was mainly associated with the behavior of interest rates towards the end of November, since they remained relatively stable during most of December. In particular, the monthly average of the interest rate paid by private banks in the wholesale tranche and for deposits of up to 35 days (BADLAR) stood at 9.8%, with a decrease of 0.9 p.p. compared to the average recorded in November.

• Lending rates maintained a downward trend during December. Among commercial loans granted by private banks in Capital and GBA, the average interest rate of current account advances with prior agreement, granted to companies, for up to 7 days of term and for amounts greater than $10 million, stood at 10.7% with a decrease of 0.8 p.p. compared to the average observed in November. On the other hand, the interest rates of the three types of financing through documents (discounted, single-signature and purchased) registered a similar evolution. In particular, the average rate of discounted documents would have decreased 1 p.p. compared to the average for November.