Monthly Monetary Report

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

Summary

• The broader monetary aggregate in pesos (M3) showed a monthly growth of 2.7%, which continued to be driven mainly by the Central Bank’s purchases of foreign currency and by the growth of loans in pesos to the private sector.

• Private sector deposits in pesos increased by 2.2%. In particular, the growth of current and fixed-term account deposits (especially in the wholesale segment) was highlighted, which showed one of the highest increases in recent years for the month.

• The financial system’s ample liquidity in local currency (sum of cash in banks, current account deposits, financial institutions’ passes with the Central Bank and holdings of LEBAC and NOBAC, over total deposits) grew by 0.4 p.p. to 38.9%. The increase in the holding of LEBAC and NOBAC and in the balances held in passive pass operations for the Central Bank was highlighted.

• Loans in pesos to the private sector grew 2.3% ($5,880 million) in May, above the growth of April but below that observed in recent years during the same month. Thus, the year-on-year rate of change of financing to the private sector stood at 42.9%, showing a gradual slowdown. The lines that contributed the most to the monthly growth of loans to the private sector were current account advances and personal loans.

• Short-term passive interest rates continued to decline, both in the $1 million and above segment and in the less than $1 million segment. The BADLAR of private banks – interest rate for time deposits of more than $1 million and a 30-35 day term – averaged 11.7%, registering a decrease of 0.5 p.p. in the month and accumulating a fall of 7 p.p. compared to the average observed in December. In the retail segment, the interest rate paid by private banks for their fixed-term deposits (up to $100,000 and up to 35 days) averaged 11.1% in May and decreased 0.5 p.p. compared to April. In this way, in the first five months of the year it accumulated a drop of 3 p.p..

• Interest rates on loans to the private sector also declined in the month. The largest falls were again recorded in the rates destined to finance commercial activities. In particular, the monthly average of the interest rate on current account advances stood at 21%, decreasing 0.5 p.p. compared to April and accumulating a fall of 5.8 p.p. in the year. Meanwhile, the interest rate on documents discounted to companies averaged 17.5%, decreasing 0.7p.p. in the month and 8.2 p.p. in the year. Likewise, the interest rate on signature documents averaged 17.8%, falling 0.6 p.p. in the month and 4.3 p.p. compared to December.

• In the foreign currency segment, the average monthly balance of total deposits decreased 4.1% compared to the April average, mainly due to the fall in private sector placements. It is important to remember that, as a result of the prudential policies implemented in recent years (which restrict debtors who are eligible to receive financing in foreign currency to those who have income in that currency), the Argentine financial system has a low degree of dollarization and a very low level of currency mismatch. In fact, the monthly drop in foreign currency deposits was equivalent to 0.4% of total deposits (in pesos and dollars). In turn, liquidity in this segment remained high and was equivalent to 61% of total deposits in dollars.