Monthly Monetary Report

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

Summary

• In March, the INDEC GBA CPI for February was published, according to which monthly inflation was 2.5%, while its core component registered an increase of 1.8% compared to January. Overall price levels in other jurisdictions also accelerated from the previous month, although they increased less than the GBA CPI. However, the core inflation indicators of the City of Buenos Aires and Córdoba slowed down compared to January. On the other hand, the public and private high-frequency indicators monitored by the Central Bank showed mixed signals about the evolution of inflation in March.

• In this scenario, the BCRA decided to keep its monetary policy rate, the center of the 7-day pass corridor, unchanged at 24.75%. It also maintained the breadth of the corridor, so the 7-day passive pass rate stood at 24% and the active pass rate at 25.5%. The BCRA maintains a cautious attitude, given the volatility of monthly inflation, and is ready to act if necessary.

• After the consolidation of the pass market, the Central Bank returned to operating in the secondary LEBAC market, selling securities, in order to absorb the excess liquidity in the system and, at the same time, encourage the extension of the average term of its non-monetary liabilities.

• In the month under analysis, a reduction in reserve requirements on deposits in pesos came into force and the destruction of deteriorated banknotes that were in the possession of financial institutions was accelerated. These factors and the fall in the holding of LEBAC in the hands of banks generated a change in the composition of bank liquidity, in favor of the passes held in the BCRA.

• Interest rates traded in the interfinancial markets decreased to levels close to the floor of the pass corridor. In turn, passive interest rates fell, especially in the wholesale segment. For their part, most lending rates remained at levels similar to those of February.

• The fall in monetary circulation, in particular cash in banks, and in the current accounts of banks with the Central Bank, associated with the destruction of banknotes and the exchange of reserve requirements, respectively; This resulted in an abrupt deceleration of the monetary base (its year-on-year growth was reduced by 12 p.p. compared to February). On the other hand, the broader monetary aggregates increased their year-on-year growth rates compared to February, although in different magnitudes: while private M2 grew at 31.6% YoY, 0.3 p.p. above the previous month (with a monthly fall of 0.2%); private M3 increased 26.5% compared to 12 months ago, 0.6 p.p. more than in February (showing a monthly growth of 0.7%).

• Monthly loan growth was driven primarily by personal loans. Mortgages continued to be encouraged by those denominated in UVAs, which in March totaled around $1,100 million, approximately half of the mortgage loans granted to families. Thus, since the launch of this instrument, in April 2016, and until March, more than $4,500 million have been disbursed.