Monthly Monetary Report

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

• In January, the INDEC GBA CPI for December 2016 was released. In that month, the general price level increased 1.2%, which confirmed that the Central Bank met its objective of monthly inflation of 1.5% or less for the last quarter of 2016. In turn, the core component of the index showed a monthly growth of 1.7%. The Central Bank considers that in the coming months core inflation should be at a lower level than the one mentioned, and with a downward trend, compared to a year in which increases in regulated prices are expected to be higher than those of the rest of the components of the CPI.

• On the other hand, the high-frequency indicators from state and private sources monitored by the Central Bank showed mixed signals on the evolution of prices in January, with a better performance in the
second half of the month than in the first. Taking into account all the available information, the Central Bank decided to maintain its monetary policy interest rate, which as of this month is the center of the 7-day peso pass corridor, at 24.75%. In turn, in order to consolidate a corridor in which interest rates accurately reflect the monetary policy rate, it decided to reduce the width of the corridor to 150 basis points (24%-25.5%).

• In the course of January, the Central Bank’s 7-day pass operations gained share among the sterilization instruments and in the second half of the month they constituted the main factor of monetary absorption
.

• Most money market interest rates declined in January. The average monthly values of those traded in the interfinancial markets and of passive ones decreased by around 0.5 p.p. compared
to December. Among the lending rates, those applied to loans granted through signature documents and discounted ones decreased 1 p.p. compared to the previous month.

• Private M3 increased both in nominal terms and when considering its real and seasonally adjusted balance. This increase in real terms implied an acceleration in the nominal year-on-year growth rate of monetary aggregates. The year-on-year variations of Private M3 and M3 stood at 25.6% and 23.2%, respectively.

• The year-on-year growth of the Monetary Base exceeded that of the broader monetary aggregates, although its value is not representative considered in isolation, since several factors have influenced this variable in recent months: the way in which financial institutions decided to integrate reserve requirements into the December-February joint measurement period; the increase in reserve requirements in mid-2016 and; the largest holdings of cash by financial institutions. When considering the period that has elapsed included in the quarterly calculation of reserve requirements and adjusting the level of the monetary base for the impact of the increase in the requirement of reserve requirements and cash in banks, the year-on-year increase in the monetary base from December 2016 to January 2017 stood at 20%. In February, the effects of the aforementioned factors will persist, so in order to obtain the relevant year-on-year growth of the monetary base, an analogous adjustment will have to be made, considering the December-February quarterly averages.

• Loans in pesos to the private sector increased by 2.9% ($26,000 million), reducing their monthly growth rate, in line with the behavior observed in other years during the summer period. Its
year-on-year variation was in the order of 20%, increasing 2.5 p.p. compared to the previous month. The lines that grew the most in January were those corresponding to financing with real guarantee. Title loans increased 4.8% and mortgage loans 4.2%.

• In the month, around $600 million of mortgage loans denominated in Purchasing Value Units (UVA) were granted, which represented 37% of the mortgage loans granted to families. Thus, since
the launch of this instrument, in April 2016, and until January of this year, more than $2,600 million of UVA loans were disbursed.