Monthly Monetary Report

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

Summary

• The evolution of the general level of retail prices over the last few months was largely influenced by changes in the gas tariff. Taking into account the impact of these movements, in order to evaluate compliance with its inflation target (stipulated before the court decision that led to the tariff changes), the BCRA computes, as it had announced, the average observed between August and October. This is a correction with biases that counterbalance each other: the rate hike was lower than the reduction; but when August and September are included, months are computed earlier than originally expected, and therefore of inflation tending to be higher given the path of disinflation. According to this calculation, the average monthly inflation recorded by the GBA CPI in that period stood at 1.2%, which indicates that the BCRA is well positioned to meet its inflation target of 1.5% per month or less for the last months of this year. Likewise, the high-frequency indicators it monitors indicate that the disinflation process continued as planned in November.

• In this context, the BCRA decreased the 35-day LEBAC interest rate on 4 occasions during November, by a total of 2 percentage points (p.p.), bringing it to 24.75% at the end of the month. In turn, as part of the transition towards the adoption of the 7-day pass rate as a reference rate, the BCRA decided to align the center of the pass corridor with the current monetary policy rate, both for 1 day and for 7 days. At the end of November, the 1-day pass corridor stood at 20.75%-28.75% and the 7-day operations corridor at 21.25%-28.25%. The BCRA will continue to maintain a clear anti-inflationary bias to ensure that the disinflation process continues towards its objective.

• Another of the initiatives adopted in the context of the transition to the Inflation Targeting Regime was the comprehensive reformulation of the active and passive pass operations in pesos that the BCRA offers to financial institutions, with the aim of creating the conditions for interfinancial market rates to gravitate around the reference rate established by this Institution. It began to offer active and passive passes of 1 and 7 days without a predetermined amount limit and left without effect the operation of active passes at a variable rate. In turn, it was established that when public securities of the National Government are used as collateral for active 7-day passes, the capacity percentages will be set according to their average life.

• Shorter-term rates continued to evolve within the BCRA’s pass corridor. In general, the rest of the interest rates showed downward trends. In particular, those applied to loans instrumented through signature documents decreased 2.1 p.p. compared to October, while that corresponding to financing through discounted documents decreased 4 p.p., encouraged by the reduction in rates ordered by the BCRA for financing granted within the framework of the financing line for production and financial inclusion. Passive interest rates also fell. The monthly average of the BADLAR of private banks decreased 1 p.p. compared to October.

• In this context, lines of financing through documents were added to those of personal loans and credit cards as one of the most dynamic in November. In nominal terms, loans in pesos to the private sector presented a monthly increase of 2.5% ($20,600 million), the largest of the year. In real terms, the balance of loans in pesos began to show a slightly upward trend from the second half of the year. In turn, as a result of the substitution between loans in pesos and foreign currency recorded throughout 2016, the total loans to the private sector (in pesos and in foreign currency) show a firm upward trend since July.

• In November, more than $460 million of mortgage loans denominated in UVAs were granted. Thus, since the launch of this instrument, in April, and until the end of November, about $1,300 million of this type of financing were disbursed.

• Private sector deposits in pesos grew 2.8% in the month, with increases in demand and time deposits. Among the former, those made in savings banks stood out, which received an additional boost associated with funds in pesos adhered to the Fiscal Sincerity Regime.

• Loans to the private sector in foreign currency registered an increase of 5.2% (US$450 million) in November, accumulating a growth of 200% (US$6,000 million) so far this year.

• Foreign currency deposits of the private sector grew by US$4,300 million in November, accumulating an increase of more than US$8,000 million in the last three months. Thus, they exceeded US$20,900 million, the highest level since 2002, driven by the externalization of funds within the framework of the Fiscal Sincerity Regime.