Monthly Monetary Report

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

Summary

• After the declaration of the so-called coronavirus (COVID-19) as a pandemic, measures began to be adopted in our country to mitigate the spread of the virus. Among them, on March 16, the granting of licenses and the modality of remote work for employees of the public and private sectors was ordered and as of March 20, “social, preventive and mandatory isolation” was ordered.
• In this context, from mid-March onwards, the evolution of monetary aggregates began to differ from what is usual for this part of the year, with higher growth in the private M3 broad monetary aggregate. The National Government provided a set of measures to mitigate the economic impact of the lower activity on different sectors and, in turn, the non-financial private sector – in particular, companies – accelerated the use of loans in pesos to meet their liquidity needs, which increased the participation of secondary money creation in the growth of monetary aggregates.
• As of the second half of March, an increase in the demand for transactional money was observed as a result of the combination of different factors: precautionary reasons, the impossibility of arranging time deposits in person, and the collection of the extraordinary subsidy for beneficiaries of social allowances and retirees during the last few days. Thus, in real and seasonally adjusted terms, the working capital held by the public completed an average monthly increase of 2.6%, while demand deposits in pesos of the private sector registered an average monthly growth of 6.6%.
• Between March 20 and 31, part of the time deposits in pesos were not renewed. 65% of the fall in the stock of term placements during that period resulted in a growth in immobilized balances, which would reflect the concentration of this behavior in holders who usually carry out their operations in person. The average monthly balance of private sector time deposits grew 4.0% compared to February in nominal terms (1.4% in real terms), while the sum of fixed terms and immobilized balances completed an average monthly growth of 4.8%.
• Loans in pesos to the private sector accelerated their growth rate. In nominal terms and without seasonality, they presented an average monthly increase of 3.4%, the highest in the last four months, with a year-on-year variation of 25.2%. The lines intended essentially for companies (advances, documents and other loans) were the ones that drove the growth of the month, due to the greater need for funds caused by the interruption of many productive activities as a result of the “social, preventive and mandatory isolation”.
• Lending rates showed dissimilar behaviors in March, although in all cases they completed falls in the month. Those applied to commercial lines had a period of transitory increase, the third week, and then resumed downward trajectories. The discount rate for documents averaged 36.63%, down 2.2 p.p. compared to February, while the rate applied to single-signature documents averaged 40.1%, showing a monthly drop of 1.5 p.p.
• The BCRA adopted a set of measures aimed at mitigating the economic impact of the health emergency. Among them, it provided for a reduction in reserve requirements for those financial institutions that grant loans with a maximum interest rate of 24% n.a. to MSMEs – at least 50% of the amount of these financings must be allocated to working capital lines – or to health service providers to buy medical supplies and equipment. At the same time, it accentuated the incentives for loans to MSMEs for the payment of salaries, giving them greater weight when calculating the reduction on the requirement of reserve requirements. In addition, it established that financial institutions will begin to reduce their holdings of surplus LELIQ – those that exceed those admitted as part of the Minimum Cash requirement – as of March 20.
• In nominal terms and without seasonality, credit card financing grew 1.9% in March. Over the next month, the evolution of this line will be influenced by various measures. First, due to the extension of the mandatory quarantine until April 12, credit card expirations were postponed until the 13th of the same month. A reduction in the maximum financing rate from 55% n.a. to 49% n.a. was also ordered. Additionally, the Ahora 12 program was extended for 3 months, until June 30, and new items were added, such as food and medicines, in addition to online purchases in fixed installments.