Monthly Monetary Report

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

Summary

• In February, the January variation of the INDEC GBA CPI, an index that the BCRA uses to measure compliance with its targets, was known. Both its general level and the core component increased 1.3% compared to December 2016. On the other hand, the different high-frequency indicators monitored by the BCRA indicate an increase in inflation in February compared to what was observed in previous months, mainly derived from the evolution of regulated prices. This development does not alter the monetary authority’s outlook on the ongoing disinflation process, but it merits a cautious attitude.

• In this scenario, the BCRA decided to keep its monetary policy rate, the center of the 7-day pass corridor, unchanged at 24.75%. It also maintained the breadth of the corridor, so the 7-day
passive pass rate stood at 24% and the active pass rate at 25.5%.

• Shorter-term interest rates showed downward trajectories, declining toward the bottom of the pass corridors. Those operated in the interbank loan markets – call and repo – and those applied to advances to companies of up to 7 days decreased by around 0.5 p.p. Among the active interest rates, those applied to personal loans and documents with a single signature also fell. Meanwhile, the rates paid for fixed terms remained relatively stable.

• Private M3 remained practically unchanged from the previous month when considering its real and seasonally adjusted balance. Meanwhile, in nominal terms, its year-on-year growth rate increased 0.7 p.p.
compared to January and, due to the growth of public deposits, the growth of M3 Total grew 4.5 p.p. in the month. The year-on-year variations of Private M3 and M3 stood at 26.3% and 27.7%, respectively.

• Year-on-year growth of the Monetary Base continued to be above that recorded by the broader monetary aggregates. As explained in the January Monthly Monetary Report, several factors affected this variable during the last months: the way in which financial institutions decided to integrate reserve requirements into the December-February joint measurement period; the increase in reserve ratios arranged in
mid-2016 and; the higher holdings of cash by financial institutions. When considering the period included in the quarterly calculation of reserve requirements and adjusting the level of the monetary base for the impact of the increase in reserve requirements and cash in banks, the year-on-year increase in the monetary base for the December 2016-February 2017 quarter stood at 24%.

• Effective March, the BCRA ordered a reduction in reserve requirements on deposits in pesos equivalent to 2% of these placements. This measure is aimed at counteracting the greater amount
of immobilized funds held by financial institutions as a collateral effect of initiatives aimed at reducing the operating costs of cash management. On the other hand, it would tend to compress the differences between lending and lending rates; eventually, encouraging the rise in the rates paid for deposits.

• Following the operational changes implied by the adoption of the Inflation Targeting regime and in a period with seasonally low loan growth, in February, financial institutions allocated the increase in their
deposits in pesos and the funds associated with the reduction of their holdings of LEBAC mainly to increase their balances in passes with the BCRA.

• As usual in February, loans in pesos to the private sector moderated their monthly growth rate. They increased l.8%, which contrasts with the fall observed in the same month of 2016. Thus, the year-on-year variation
increased 3.1 p.p. to 23.2%. Personal loans continued to concentrate most of the financing in pesos. In this type of credit line, in addition to the traditional ones, since the end of 2016 UVA loans began to be granted, although they still represent a small proportion of the total granted.

• Among mortgage loans, those denominated in UVA continued to gain share and in February accounted for about 45% of total mortgage loans granted to families. Since the launch of this instrument, in April 2016, and until February, $3,400 million of mortgage loans were granted in UVA.