Monthly Monetary Report

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

Summary

• During January and February, the Central Bank focused its actions on absorbing excess liquidity, seeking to reconcile the evolution of monetary aggregates with a downward trajectory of the inflation rate. Subsequently, it undertook a gradual migration towards the use of the interest rate as the main instrument of its monetary policy; just as countries with inflation targets do, a regime towards which the Central Bank is transitioning. The interest rate that the Central Bank currently sets as a reference is that of the shortest-term LEBAC, through its intervention in both the primary and secondary markets. In addition, consistent with this rate, this Institution establishes a corridor of interest rates for passes.

• Once the interest rate is defined, the monetary base and monetary aggregates increase or decrease in step with the liquidity needs of the market. Therefore, if there is an expansion in the quantity of money that
is not validated by a greater demand for money, the additional liquidity will be automatically absorbed via securities or passive passes.

• During March, in view of the persistence of a high inflation rate, the Central Bank increased the shortest-term (35-day) LEBAC cut-off interest rate by 6.9 p.p. The rest of the LEBAC interest
rate curve, which resulted from monetary equilibrium, increased between 5.5 p.p. and 3.7 p.p., depending on the term. This Institution concentrated its participation in the secondary LEBAC market in the shorter-term segment, aligning
interest rates with that of the primary market.

• The Central Bank increased the interest rates of its pass operations by 5 p.p. during the course of the month. Thus, interest rates on passive passes for 1 and 7-day terms stood at 30% and 31% at the end of
March; while those on active passes reached 39% and 40% for the same terms. In this period, the interest rate of the call market was within the pass corridor established by the Central Bank
.

• Money market interest rates partially replicated the increase in benchmark interest rates. The BADLAR of private banks showed an increase of 3.6 p.p. compared to the previous month and stood at
29.7%. Among the lending rates, increases were observed in financing instrumented through account advances, while the rest of the lines showed a heterogeneous behavior.

• Monetary aggregates continued to slow their growth rate. The broadest aggregate in pesos (M3) reduced its year-on-year variation by 1.8 p.p. to 29.1% and private M2 reached a year-on-year growth
of 27.6%, 0.6 p.p. lower than the previous month. For its part, the balance of M3 fell compared to February, with a differentiated behavior among its components. Private sector deposits increased encouraged by private sector time deposits which, in turn, grew driven by placements of up to $1 million; On the other hand, demand deposits from the private sector remained stable and public sector placements declined.

• Loans in pesos to the private sector increased 0.7% ($5,680 million), which implied that their year-on-year growth rate stood at 33.3%, 1.7 p.p. below that observed in February. Distinguishing
between the different lines of credit, those intended to essentially finance household consumption showed increases, while lines with a mainly commercial purpose decreased.
• In a period in which total deposits in pesos decreased (due to the fall in public sector placements) and loans, despite their slowdown, increased; the average peso liquidity ratio of
financial institutions in March (sum of cash in banks, the current account of the entities in the Central Bank, net passes with such entity and the holding of LEBAC, as a percentage of deposits in pesos) fell
0.7 p.p. compared to February, standing at 37.9%.

• On April 7, the Central Bank ordered the implementation of a new savings and loan modality with the potential to radically change access to housing for Argentine families. With this initiative,
it aims to promote development with social equity, one of the mandates of its Organic Charter. The instruments under this new modality will be denominated in Housing Units (UVIs), whose initial value as of March
31, 2016 is $14,053, equivalent to one thousandth of the average construction cost of a control square meter. The UVI value will be updated daily by the Reference Stabilization Coefficient (CER). The enabling of savings in ICUs will make a savings instrument protected from inflation available to families. Meanwhile, the implementation of the credit market in ICUs has the potential to multiply access to mortgage loans (see Press Release P 50727).