Monthly Monetary Report

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

Summary

• Throughout February, the Central Bank continued to act to reconcile the evolution of monetary aggregates with a downward trajectory of the inflation rate. The sterilization
policy implemented in the month moderated the year-on-year variation of the monetary base, which stood at 25%. This action by the Central Bank was favored by the behavior of bank reserves
throughout the quarterly period – from December to February – of integration of the Minimum Cash regime. With the start of a new Minimum Cash position, a recomposition of
bank reserves is expected. This would motivate a transitory acceleration in the monetary base, which is consistent with the marked decrease in its growth rate that will take place this year.

• Among the remaining monetary aggregates, reductions in the pace of growth were also observed. In particular, private sector transactional money (Private M2) once again slowed its expansion speed (-1.2 p.p.), showing a year-on-year variation of 28.2%.

• Fixed-term deposits in the private sector showed a monthly growth of 1.5% and a year-on-year variation of around 50%. When distinguishing by amount stratum, a moderation is observed in the growing trend of deposits of less than $1 million, together with a decrease in placements in the wholesale segment. The lower dynamism of fixed terms of more than $1 million would be associated, in part, with the sustained demand for LEBAC by investors who are not financial institutions.

• Loans in pesos to the private sector showed a decrease of 0.7% ($5,700 million) and continued to slow their year-on-year growth rate, which went from 36.7% in January to 35% in February. The decrease recorded in the month was mainly explained by the behavior of loans instrumented through documents, while the remaining lines presented more limited variations.

• In a context of less dynamism in private sector lending, the liquidity ratio of financial institutions in local currency grew again for the third consecutive month, reaching 38.6%. Within the framework of the quarterly minimum cash position, a change in the composition of liquidity was observed, with a greater holding of LEBACs by financial institutions and, to a lesser extent, a higher balance of net passes and cash in banks. These increases were partially offset by a considerable fall in the current account of the entities at the Central Bank, which reached one of the lowest levels in recent years.

• Reinforcing its commitment to inflationary moderation, the Central Bank increased the cut-off interest rate in its weekly LEBAC auctions. Thus, at the end of February, interest rates on LEBACs stood at 31.2% for the shortest term (35 days) and 28.6% for the most mature awarded species (255 days). This bias in monetary policy continued during the first auction in March, in which the Central Bank promoted interest rate hikes of up to 6 p.p. In the same vein, the Central Bank adjusted the interest rate corridor on February 29, placing the interest rates of 1 and 7-day passive passes at 25% and 26%, and that of active passes at 34% and 35%, for the same terms. Analogous to the behavior of LEBAC rates, the Central Bank raised the pass rates again towards the beginning of March by 3 p.p. for passive passes and 4 p.p. for active passes.

• International reserves ended at a level close to US$29,000 million, registering a decrease throughout the month mainly explained by the fall in the holdings of financial institutions in the Central Bank that were used to meet the demand of their customers. Part of these holdings corresponded to anticipated income from customers registered during the month of December and settled in the foreign exchange market during the month of February.