Monthly Monetary Report

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

Summary

In June, the Argentine authorities and the International Monetary Fund (IMF) signed a 36-month Stand-By Arrangement for an amount of US$50,000 million. The first tranche (US$15,000 million) was disbursed on June 22, after the approval of the program. The rest of the sections are precautionary. Within the framework of this agreement, the BCRA has already suspended the direct or indirect financing of the Central Bank to the Treasury and will reduce its credit exposure to the government in a predictable manner and in stages.

The agreement provides for the inflation targeting scheme to be accompanied by a flexible exchange rate policy. Foreign exchange interventions will take place only in periods of clear market dysfunction. In June, the BCRA sold foreign currency to the private sector through bilateral operations and also through tenders, for a total of US$1,269 million.

Considering the growth rate recorded by prices, the signs of acceleration in inflation shown in June by high-frequency indicators – reflecting the direct and indirect effects of significant exchange rate instability – and the uncertainties that remain based on the external context, the Monetary Policy Council decided to maintain the restrictive bias of monetary policy; it maintained the monetary policy rate at 40% and introduced a 5 p.p. increase in remunerated reserve requirements.

The BCRA communicated its intention to continue carrying out open market operations through its participation in the LEBAC secondary market, affecting interest rates to reinforce the monetary policy signal. In June, the BCRA made net purchases during the first days and net sales after the auction. The 35-day interest rate ended the month at 43%, 261 bps above its level at the end of May.

Passive interest rates grew, mainly in the second half of June, influenced by the increase in the yield of LEBACs. The TM20 rate of private banks ended the month at 33.8%, 2.8 p.p. above its value at the end of May. Meanwhile, the BADLAR of private banks ended June at 32.7%, a level 2.7 p.p. higher than at the end of May. Similarly, the interest rate paid on fixed-term deposits of up to $100,000 and up to 35 days reached 28.6% at the end of the month, completing a monthly increase of 2.9 p.p.

The increase in passive rates had a correlation with the growth of term placements in pesos by the private sector only from the last week of June. The average monthly balance of these placements was maintained with respect to May, both in nominal terms and when considering them seasonally adjusted and adjusted for inflation. On the other hand, the components of private M2: demand and current deposits held by the public continued to decrease in real and seasonally adjusted terms and, thus, real seasonally adjusted private M3 decreased by 1.4% compared to May.

The real and seasonally adjusted balance of loans in pesos to the private sector was maintained compared to May. Most lines of financing slowed down their growth rate, with the exception of credit card financing, encouraged by the higher expenditures on household appliances that are usually observed in this period in the years in which there is a World Cup. Mortgage loans felt the impact of the depreciation of the peso against the dollar and slowed their seasonally adjusted real growth rate to 3.3% monthly. Its nominal growth was 5.1% ($9,290 million), accumulating an increase of more than 160% in the last 12 months.

To encourage financing for micro, small and medium-sized enterprises, the BCRA ordered, among other things, effective as of July, an increase in the values that financial institutions can deduct from reserve requirements according to the loans they have granted to this type of debtor in relation to the total number of loans. The maximum that can be deducted for financing granted under the AHORA12 program was also increased. The monetary effect of these increases will be offset by the elimination of the other deductions that were allowed until June. For its part, the increase in interest-bearing reserve requirements already mentioned will be as follows: 3 p.p. effective as of June 21 and 2 p.p. as of July 18, in both cases, integrable through 2020 bonds of the National Treasury. In turn; an increase of 3 p.p. was ordered as of
July 2, which must be completed through balances in current accounts at the BCRA.

In this context, in June there was a change in the composition of bank liquidity, in favor of the assets admitted to integrate reserve requirements: 2020 bonds and current accounts at the BCRA, to the detriment of LEBAC and LELIQ. The liquidity in pesos of financial institutions (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, LELIQ and 2020 bonds, as a percentage of deposits in pesos) remained stable in June, averaging 41.6%.