Monthly Monetary Report

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

Summary

• The retail price indices published in December showed a slowdown in monthly inflation in November, both when considering the general levels and the core inflation indicators. In particular, the general level of the GBA CPI published by INDEC increased 1.6% in November. As it had announced in October, to evaluate compliance with the average monthly inflation target of 1.5% or less for the last quarter of 2016, the Central Bank computes the August-October average, thus contemplating both the fall and the increase in the gas rate. The average between the monthly inflation calculated for that period and that of November stood at 1.4%. In turn, estimates and high-frequency indicators monitored by the Central Bank show that inflation in December would have been in line with the target set for the last months of 2016.

• In December, the Central Bank published the “Objectives and plans regarding the development of monetary, exchange, financial and credit policy for 2017” 2. In accordance with the provisions of Article 3 of its Organic Charter, the BCRA’s first objective is to ensure Argentina’s monetary stability, and to achieve this, the Central Bank has implemented an inflation targeting regime. For 2017, the inflation target is between 12% and 17% per year, converging to 5% per year by the end of 2019. The main monetary policy instrument since January 1, 2017 is the central interest rate of the 7-day peso pass “corridor”. This rate will be decided weekly by the institution’s Monetary Policy Council. In December and until the publication of this report, the center of the 7-day pass corridor remained at 24.75%, and the breadth of the corridor is 200 basis points.

• Most money market interest rates declined in December. The average monthly values of those traded in the interfinancial markets and of passive ones decreased by around 1 p.p. compared to November. Among the active interest rates, those applied to those granted through single-signature documents and personal interest fell by similar magnitudes, while those corresponding to collateral loans decreased 1.5 p.p. compared to the previous month.

• The broad monetary aggregate, private M3, increased both in nominal terms and when considering its real and seasonally adjusted balance. In December, growth was driven by private sector means of payment. Among them, the increase in savings bank deposits and working capital held by the public stood out.

• Private sector foreign currency deposits continued to grow. They rose $1.7 billion during the month to $22.45 billion at the end of December, the highest level since early 2002.

• In real terms, total loans to the private sector (in pesos and foreign currency) completed the second half of 2016 showing a sustained upward trajectory. In nominal terms, loans in pesos to the private sector accelerated their monthly growth rate, presenting an increase of 4.5% ($38,500 million), the largest increase of the year, and even exceeding that observed in December 2015. The lines that contributed the most to the growth of the month were those associated with consumption and those granted through documents.

• Loans with mortgage guarantee registered a monthly increase of 3.3% ($1,870 million), the largest since the beginning of 2013. In particular, those denominated in Purchasing Value Units (UVA) continued to show dynamism: more than $800 million were granted in the month, an amount higher than in previous months. Thus, since the launch of this instrument, in April, and until December, approximately $2,100 million of mortgage loans denominated in UVA were disbursed.

• The stock of foreign currency loans tripled in 2016. The growth recorded in December allowed them to accumulate an increase of US$6,240 million (215%) in the year, concentrated in single-signature documents (largely explained by export pre-financing).

• On December 12, the Central Bank paid the US$1,000 million of capital it had arranged in passive transfer operations in dollars with international banks towards the end of July. Thus, it cancelled all the passive pass operations with international banks that it had on its balance sheet. In 2016, international reserves accumulated a growth of US$13,208 million, which allows it to continue with the process of improving the quality of its balance sheet and reducing the cost of its international liabilities, maintaining the necessary flexibility to activate the different available mechanisms that it has developed to face possible external shocks if necessary.