Monthly Monetary Report

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

• In December, the national consumer price index (CPI) of the INDEC for November was published, whose monthly variation was 1.4% for the general level and 1.3% for the core component. Core inflation has been falling in recent months, breaking the level of persistence observed until the third quarter. Its three-month moving average registered the lowest value since INDEC data were published in 2016, and is also the lowest value since September 2012, the date from which CABA data is available for comparison. The BCRA decided to keep its monetary policy rate – the center of the 7-day pass corridor – unchanged during the month at 28.75%.

• On December 28, news was announced regarding the inflation targeting scheme and transfers from the monetary authority to the Treasury. In particular, it was decided to postpone the objective of achieving long-term inflation of 5% per year for one year, with respect to the path announced in January 2016. Intermediate inflation targets are 15% in 2018 and 10% in 2019, before reaching the long-term target of 5% in 2020. In addition, the trajectory of monetary transfers from the BCRA to the Treasury was defined, determining its reduction to $140,000 million in 2018, $70,000 million in 2019, and it was established that as of 2020 the limit of transfers will be defined by the genuine increase in the demand for the monetary base, explained by economic growth.

• Faced with the seasonal increase in the demand for liquidity – associated with the end-of-year holidays, the payment of the complementary half annual salary and the imminent beginning of the summer recess – the BCRA carried out open market operations to minimize its impact on the volatility of interest rates in the money market. It bought LEBAC in the days leading up to the monthly bond maturity and sold for most of the rest of December. Thus, in the month it made net sales of LEBAC in the secondary market for VN $64.4 billion.

• Interest rates in the inter-financial loan markets moved within the BCRA’s pass corridor, reaching maximum values before the maturity of the LEBACs, and then falling to the floor towards the end of the month. Among the rest of the interest rates in the money market, an upward trend prevailed, with average monthly values that exceeded those observed in November by about 1 p.p.
• The nominal evolution of monetary aggregates was in line with expectations in December, with the increase in the components of private M2 (current in the hands of the public and demand deposits) and a slowdown in time deposits. Once the movements associated with seasonality are excluded and when considering the balances in real terms, it can be seen that private M3 increased 1.4% in December and that the fixed terms in pesos of the private sector were the component that explained most of its growth.

• When considering balances in real and seasonally adjusted terms, total loans, pesos and foreign currency, increased 1.5% in December, while loans in local currency grew 1.7%. Thus, in 2017 loans to the private sector accumulated a real growth of 24.6%. Most of the financing lines showed positive real variations in the year.

• Mortgage loans continued to stand out in December, registering a nominal increase of 10.2% ($11,800 million). Thus, they doubled their balance in the last 12 months (growth of 106.7% YoY), driven by UVA financing. Since the launch of this instrument (April 2016), approximately $56,300 million of mortgages have been granted in UVA.

• Contrary to what had been observed, in December the growth of loans was below that of deposits, so the liquidity of financial institutions in the segment in local currency (measured as the sum of cash in banks, the current account of the entities in the Central Bank, the net passes with such entity and the holding of LEBACs, as a percentage of deposits in pesos) increased 1.3 p.p., reaching 39.8%. The increase was caused by an increase in LEBAC balances and by higher current account balances at the BCRA (in December the reserve requirements required due to the seasonal increase in demand deposits increased).