Monthly Monetary Report

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

Summary

During the month of May, the BCRA’s Monetary Policy Council adopted a set of measures to address the financial turbulence caused by the tightening of global financing conditions, to which some local factors were added. Given the disruptive dynamics shown by the foreign exchange market and the significant depreciation of the peso against the currencies of other emerging countries, the monetary policy rate rose 975 basis points (bps), taking it to 40%. In turn, it expanded the width of the pass corridor and raised the rate of active 7-day passes to 47%, while passive passes of the same term began to be operated at 33%. Additionally, it sold foreign currency in the spot market and began trading in the dollar futures market.

The Central Bank continued to operate in the secondary LEBAC market, making purchases and sales, encouraging the adaptation of the rest of the interest rates to the reference rates. Likewise, as of May, it began to carry out LEBAC exchange operations with the aim of extending the average term of the outstanding portfolio, redeeming part of the specie maturing in June and issuing those with a longer term.

Most interest rates in the money market were adapted to the BCRA’s new reference levels: while those in the interfinancial lending markets continued to be located within the corridor, among the passive ones, those in the wholesale segment reacted the most. The BADLAR and the TM20 of private banks ended the month at 30% and 31.1%, with increases of 7.2 p.p. and 8.1 p.p., respectively. In turn, the rate paid for 90-day UVA adjustable time deposits averaged 4.4% in May.

The BCRA’s net sale of dollars had as a counterpart the non-financial private sector, which used part of its stock of LEBAC for this purpose. Mainly, those that decreased their assets issued by the BCRA were the fixed-income mutual funds whose portfolio is mainly invested in these securities and which faced redemptions of their shares in the period and holders who are not residents in the country. Thus, despite the greater demand for foreign currency, the private sector’s time deposits in pesos increased both in nominal terms (4%) and when considering seasonally adjusted balances and in real terms (1%).

Time deposits in UVA accelerated their growth rate, especially in the retail segment. It should be remembered that as of the last days of April, the minimum period of arrangement for this type of deposit was reduced from 180 to 90 days. This modification and the growing availability of platforms to agree on them electronically contributed to its progress. Although they still represent a small proportion of time deposits, their growth is well above that of other placements. At the end of 2017, the balance of time deposits denominated in UVAs was $2,200 million and at the end of May it reached $12,400 million. In May, deposits of less than $1 million increased 64%, when during the first four months of the year they presented an average monthly growth of 12%.

In real and seasonally adjusted terms, the balance of loans in local currency increased 0.8% in the month and its year-on-year variation stood at 20.4%. The mortgage loan line was the one that concentrated most of the total increase, growing 5.7% in real and seasonally adjusted terms. In nominal terms, mortgages grew 7.5% ($12,700 million) in May, accumulating a year-on-year increase of 160%. UVA financing continued to represent more than 90% of loans to individuals. Since the launch of this instrument, approximately $111,750 million of mortgage loans have been granted in UVA.

To facilitate the management of liquidity of financial institutions in the face of the aforementioned turbulence scenario, a quarterly period was established – from May to July – for the integration of reserve requirements in pesos and the minimum daily integration requirement for May was eliminated. However, given that the volatility observed in the foreign exchange market had no impact on deposits in pesos, bank liquidity remained at more than 40% of deposits, although with a change in composition, in favor of LEBACs and to the detriment of LELIQs and passes.