Monthly Monetary Report

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

Summary

• Private sector deposits, both demand and time, increased in May. Fixed-term placements continued to grow, driven mainly by the segment of less than $1 million, which exhibited the largest increase in recent years (4.3%). The corresponding wholesale stratum maintained their relatively stable balance, in a period characterised by the high demand for liquidity from companies to meet tax maturities.

• As usual, the higher liquidity needs of companies were correlated with the increase in loans granted through current account advances. This line was the one that drove the growth of the balance of loans in pesos to the private sector during May. Overall, financing in pesos to the private sector grew 1% ($4,980 million) and reached a growth of 26.9% year-on-year.

• The Central Bank continues to stimulate productive credit through the Bicentennial Productive Financing Program (PFPB) and the Credit Line for Productive Investment (LCIP). Under the PFPB, it continued to disburse long-term funds for investment at a fixed total financial cost in pesos. Thus, the total resources disbursed since the beginning of the program amounts to $6,327 million, about 80% of what was awarded. Regarding the LCIP, it provided that also during the month of June, financial institutions may apply up to 10% of the quota of the first half of 2014 to the discount of deferred payment checks for MSMEs (with a total limit of 40%), but without the possibility of transferring what was not applied in May to the following month. According to the preliminary information available, up to April, 28 of the 31 entities included in the LCIP agreed to loans in compliance with 41% of their goal established in aggregate form for the first half of 2014.

• An increase in liquidity in local currency (sum of cash, current account at the Central Bank, net passes with this institution and the holding of LEBAC and NOBAC) was observed, which reached a level equivalent to 36.6% of total deposits in pesos, 0.8 p.p. above April, mainly explained by higher holdings of LEBAC and NOBAC.

• In May, the Central Bank reduced the interest rates it pays on the securities it places each week in the primary market by 1 p.p. The decrease, made at the beginning of the month, was in all the terms of the yield curve. The interest rates of the LEBACs auctioned at a predetermined value – with terms of 85 days and 105 days – stood at 26.7% and 26.9%, respectively.

• In this context, the interest rates paid by financial institutions for their fixed-term deposits fell, returning to the levels observed at the end of January. In particular, in the wholesale segment, the BADLAR of private banks – interest rate for fixed-term deposits of $1 million and more, with a term of 30-35 days – averaged 24.7%, falling 1.6 p.p. in the month. For its part, the monthly average of the interest rate paid by private entities for fixed-term deposits of up to $100,000 up to 35 days stood at 21.2%, 0.4 p.p. below April.

• In general, interest rates applied to loans in pesos to the private sector continued to fall, a movement observed since the second half of April. Among the commercial lines, the interest rates applied to financing through documents were the ones that led the decline. The monthly average of the interest rate applied to the discount of documents stood at 27.8%, decreasing 1.8 p.p. in the month. Among the longer-term lines, that corresponding to personal loans fell 1.6 p.p., averaging 44.5%; while the interest rate on pledge loans decreased 2.1 p.p., to 25.4%.

• At the beginning of June, the Central Bank adopted a series of regulatory modifications aimed at expanding credit under more favorable conditions for families. First, it adopted a regime of reference interest rates for loans to individuals, basically personal and pledged, with the purpose of limiting the cost of credit for the most vulnerable segments of the population. In turn, it established that financial institutions must have prior authorization to apply increases on the cost of financial products and services considered basic. Also, in order to avoid distortions, it provided that the total financial cost be reported as an annual nominal rate, instead of an annual effective rate. Finally, taking into account the development of financing that non-financial credit providers grant to their customers, particularly in localities that lack infrastructure for the provision of services by financial institutions, it established a regulation for credit assistance to these lenders (mutuals, cooperatives and non-financial issuers of credit or purchase cards, etc.). among others).