Monthly Monetary Report

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

Summary

• In June, the price indices for the month of May were published. Retail inflation was lower than that recorded in April, both as revealed by the index prepared by INDEC for Greater Buenos Aires, and in other jurisdictions. According to INDEC’s CPI, annual inflation as of June was 24%, while wholesale price indices varied between 14% and 15.3% y.o.y. On the other hand, estimates and high-frequency indicators from state and private sources monitored by the BCRA suggest that inflation in June would have been at levels similar to those observed in May, although higher than those sought by the monetary authority for this part of the year.

• 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%.

• Most money market interest rates remained stable. While interest rates in the interfinancial lending markets remained at the lower limit of the Central Bank’s pass corridor, liabilities remained at levels similar to those of May.

• As it has been doing since the beginning of March, in June the BCRA absorbed liquidity through open market operations. It sold LEBAC on the secondary market for a total of VN $106.8 billion, increasing its participation in longer-term species operations.

• In the primary market, the monthly LEBAC auction was affected by the placement of the peso bond maturing in 2020 by the National Treasury, since most of those who subscribed this security using pesos were LEBAC holders who decided to reassign their portfolios. In turn, the placement resulted in an increase in public sector deposits in pesos.

• Private M3 also increased, both in nominal terms and considering its real and seasonally adjusted balance. Its growth was encouraged by the components of private M2 – working capital held by the public and demand deposits. Among time deposits in pesos in the private sector, a differentiated behavior was observed by strata of amount, with an increasing trend for those of up to $1 million and a reduction for those of higher amounts. Although a lower growth of the latter is usual in this part of the year due to the greater demand for liquidity to meet the payment of the complementary half annual salary; private sector fixed terms in pesos decreased in real and seasonally adjusted terms, in a period in which a positive spread between the yield of LEBACs and passive rates continued to be observed. On the other hand, it should be mentioned that during July there will be an increase in the components of private M2 as a result of the seasonal effect associated with the collection of the complementary half annual salary and winter vacations.

• Loans to the private sector continued to increase in both nominal and real terms. In the segment in pesos, the most dynamic lines were once again personal loans, documents and those corresponding to financing granted with real guarantee. Mortgage loans continued to be encouraged by UVA-denominated loans. In particular, in June, UVA financing totaled around $2,600 million and came to represent around 70% of mortgage loans granted to individuals, compared to 50% in May. Since its launch, more than $10,000 million of mortgage loans have been granted in UVA.

• Although the main application of liquidity by financial institutions was the granting of loans to the private sector, in June financial institutions also financed the public sector by purchasing part of the 2020 bond. Thus, the bank liquidity indicator in local currency (current account at the BCRA, cash, LEBAC balance and passes at the BCRA, in terms of deposits) fell 0.6 p.p. compared to May, to 44.7%.