Monthly Monetary Report

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

Summary

• In January, the Central Bank generated a fall in the average monetary base of $68,600 million through the placement of its securities. This monetary absorption more than compensated for the expansion associated with other
factors and the year-on-year variation of the monetary base fell 7.7 p.p. compared to the previous month, standing at 32.8%. The remaining monetary aggregates also reduced their growth rate. In particular, the broadest aggregate in pesos (M3) presented a year-on-year variation of 33.1%, which was 3.9 p.p. lower than that of December.

• Private sector deposits in pesos remained relatively stable, with a decrease in demand placements and an increase in term loans. The latter reached a year-on-year growth
of 55.1%, after increasing 7.7% in the month. Retail placements and those of more than $1 million showed a differentiated behavior. While time deposits of less than $1 million maintained an upward trend throughout the month, those of larger amounts began to decrease in the last weeks of January, in a context in which the demand for Central Bank securities by
the non-financial sector increased.

• Loans in pesos to the private sector slowed their pace of expansion, both compared to the previous month and in year-on-year terms. The increase they registered in the month was 0.8% ($6,100 million), which
implied that their year-on-year growth rate was reduced 2.2 p.p., to 36.8%. The lower growth rate was associated with the slowdown in commercial lines and those destined for consumption.

• In this context, ample liquidity in local currency of financial institutions increased 1 p.p. compared to December, reaching 37.9% of deposits in pesos. Its composition changed, with an increase in the
holding of LEBAC and a decrease in the balances in current accounts at the Central Bank. Thus, financial institutions reduced part of the surplus accumulated in the integration of the minimum cash regime –
calculated quarterly between December and February – through the purchase of Central Bank securities.

• LEBAC placements were made in a context of reduced cut-off rates. The declines of between 2 p.p. and 0.7 p.p. occurred mainly in the short section of the yield curve. Thus, at the end of January, interest rates on LEBACs stood at 30.8% for the shortest term (35 days) and 28.5% for the most mature type awarded, with a term of 250 days.

• Passive interest rates followed a similar trajectory to the cut-off interest rates resulting from the LEBAC auctions. Thus, they continued with the downward evolution that they had begun to show at the end of December. The interest rate paid by private entities for fixed-term deposits of up to $100,000 and up to 35 days of term averaged 24.7% during the month, registering a decrease of 2.4 p.p. compared to December. For its part, the BADLAR of private banks fell 1.2 p.p., averaging 26.3%.

• Lending rates had a more heterogeneous behavior. Among those applied to shorter-term transactions, those corresponding to the discount of documents were aligned with the cut-off interest rate of LEBACs with a similar term. On the other hand, those corresponding to personal loans and those granted through signature documents remained relatively stable in the course of January, after the increases they had experienced in December.

• The balance of international reserves remained relatively stable during most of January, in a context in which the Central Bank did not intervene in the foreign exchange market. However, on the last business day of the month the balance increased as a result of the agreement of a passive pass in dollars for US$5,000 million for a period of approximately 1 year. This operation was carried out against securities in the Central Bank’s portfolio and allows diversifying the different options available to fulfill the functions of exchange and monetary regulation, improving the liquidity in US dollars of the Central Bank’s assets. Thus, at the end of January, the balance of international reserves totaled US$30,074 million.