Monthly Monetary Report

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

Summary

• In December, the broadest monetary aggregate in pesos (M3) grew 5.1%, ending the year with a year-on-year expansion rate of around 24%. In a month characterised by high demand for transactional money, the working capital held by the public and demand deposits by the private sector accounted for most of the increase in M3. This behavior is explained by seasonal factors, such as the payment of the complementary half annual salary, the higher expenses of families during the holiday period and the beginning of the summer recess.

• These seasonal factors are consistent with a slowdown in the monthly growth of fixed-term deposits in pesos in the private sector. However, on this occasion, the monthly increase of 1.1% meant an acceleration of its year-on-year rate of change to 28%. In the last quarter of the year, retail term placements stood out, favored by the minimum interest rate scheme for individuals established by the BCRA as of the beginning of October. Thus, in both November and December, the segment of term placements of less than $1 million was the one that grew the most and ended the year with an increase of 32% YoY, above that recorded by time deposits of $1 million and more (24% YoY).

• Loans in pesos to the private sector accelerated their monthly rate of expansion, exhibiting an increase of 3.1% ($16,535 million) and a year-on-year variation of around 20%. The greater dynamism of loans was linked to seasonal factors – reflected in the performance of mostly commercial loans and credit card financing – as well as to policies aimed at promoting credit to the productive sector. With regard to commercial lines, financing granted through advances and discounted documents grew encouraged by seasonal factors, while single-signature documents were favored by financing granted within the framework of the Credit Line for Productive Investment (LCIP), on the occasion of the closing of the second tranche of 2014.

• The greater seasonal demand for transactional money was also reflected in the composition of the liquidity of financial institutions, which increased the proportion they hold of cash and current account deposits at the Central Bank in relation to total deposits. These assets explained the 0.4 p.p. increase in the liquidity of the segment in national currency of financial institutions (sum of cash in banks, the current account of the entities in the Central Bank, net passes with such entity and the holding of LEBAC), which in December averaged 39.6% of total deposits in pesos.

• With regard to interest rates, both those paid in the retail time deposit segment and those corresponding to wholesale placements remained relatively stable compared to last month. Meanwhile, interest rates on loans to the private sector, in general, increased, although in a limited way. Such is the case of the average interest rate on the discount on documents, which stood at 25.3%, 0.4 p.p. above the previous month, while the rate applied to single-signature documents stood at 24.2%, also increasing 0.4 p.p.

• International reserves totaled US$31,443 million at the end of December, which represented a monthly growth of US$2,532 million. Among the factors that explained the monthly increase in international reserves were the net purchases of foreign currency by the Central Bank, which totaled US$948 million. On the other hand, the third tranche of the local currency swap agreement with the Central Bank of the People’s Republic of China was activated. It should be recalled that, within the framework of this agreement, the BCRA can request additional exchanges for up to a maximum of close to US$11 billion in total, which represents support in the execution of financial, exchange rate and monetary policy.