Monthly Monetary Report

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

Summary

• In July, the National Consumer Price Index of INDEC (CPI) was published for the first time, which became the reference indicator of the monetary authority, as had been announced last year. The increase in the general level of the CPI was 1.2% in June, while core inflation stood at 1.3%. These figures confirm that the economy has returned to the path of disinflation. However, although core inflation in June was lower than in previous months, this evolution should be taken with caution given the persistence it has shown at levels higher than those sought by the monetary authority. In this sense, the high-frequency indicators from private and state sources monitored by the BCRA suggest that inflation in July would have been higher than in June.

• In this scenario, the BCRA decided to keep its monetary policy rate, the center of the 7-day pass corridor, unchanged at 26.25%. Thus, the 7-day pass corridor remained at 25.5%-27%.

• As it has been doing since the beginning of March, in July the BCRA absorbed liquidity through open market operations. It sold LEBAC on the secondary market for a total of VN $148.2 billion, offsetting the expansion associated with the partial renewal of the month’s maturity.

• Most money market interest rates showed slight increases. Those traded in the interfinancial loan markets and passive loans grew by less than 0.5 p.p., while active loans had more heterogeneous behaviors.

• Loans to the private sector increased in real and seasonally adjusted terms, both when considering the total in pesos and foreign currency and those granted in local currency only. When adding financing in both currencies, the growth of commercial loans stood out, which accelerated even without considering the variation of the exchange rate of the month. In the segment in pesos, pledges maintained an upward trend (accumulating an increase of 64% YoY) and mortgages continued to be driven by loans granted in UVA, which accounted for 80% of financing to families. Since its launch, $14,000 million of mortgage loans have been granted in UVA.

• The nominal growth of monetary aggregates was mainly driven by the seasonal increase in the demand for transactional money associated with the receipt of the half-year supplementary salary and the winter holidays. Thus, the nominal increase of 6.5% in private M2 is reduced to 0.8% if its balance is considered in real terms and adjusted for seasonality. On the other hand, private sector time deposits decreased in real terms, with a behavior that continued to be differentiated by size strata: an increase in those with a smaller amount and a fall in those of $1 million and more.

• The increase in loans exceeded that of deposits, so that the ample liquidity (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 LEBAC, as a percentage of deposits in pesos) of the financial institutions decreased 1.9 p.p. to 42.7%.