Monthly Monetary Report

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

• The core inflation indices known in the course of October and the high-frequency indicators followed by the Central Bank show that the disinflation process continued as planned. However, inflation expectations for 2017 remained 3 p.p. above the upper limit of the target range of 12%-17%. In this context, the Central Bank decided to maintain its monetary policy rate, that of the 35-day LEBAC, at 26.75% in the October auctions. It also ordered to maintain the levels of pass operation rates, at 22.5%-31.5% for 1-day operations and 23.5%-32.5% for those arranged for 7 days.

• The BCRA will continue to maintain a clear anti-inflationary bias to ensure that the disinflation process continues towards its objective for this year of monthly inflation of 1.5% or lower in the last quarter and that inflation expectations for 2017 continue to decrease.

• Interfinancial market interest rates remained within the pass corridor set by the Central Bank, while the rest of the money market interest rates declined. In particular, the main rates applied to loans associated with commercial activity fell: discounted and single-signature documents and also that applied to personal loans.

• Effective as of November, the BCRA ordered that the maximum interest rate on financing granted to MSMEs within the framework of the “Financing Line for Production and Financial Inclusion” be reduced from 22% to 17%, and that of loans expressed in “Purchasing Value Units” (UVAs) will be reduced from 5% to 1%. Also, effective as of November, the cap for the discount of deferred payment checks and other documents to MSMEs was eliminated, being able to assign these financings to the total quota assigned to this line.

• In October, loans in pesos to the private sector grew 2.2%, driven by personal loans and advances. Mortgage loans denominated in UVAs continued to show great dynamism. More than $400 million were granted in the month, an amount higher than in September. Thus, since its launch in April and until the end of October, more than $900 million of mortgage loans were disbursed in UVAs.

• Loans to the private sector in foreign currency also sustained high growth. In October they increased 7.5% (US$590 million), accumulating a growth of 191%
(US$5,540 million) so far this year, mainly through financing granted through signature documents.

• Foreign currency deposits grew, driven by both public and private sector placements. The former were associated with the entry of foreign currency to buy debt securities of the National Treasury and provincial governments. Meanwhile, private sector dollar deposits reached US$16.5 billion, the highest level since mid-2002, encouraged by the externalization of funds within the framework of the Fiscal Sincerity Regime.

• These operations boosted the growth of international reserves, which at the end of October reached US$37,210 million, US$7,309 million above their level at the end of September. In this scenario of strengthening its liquid assets in foreign currency, the Central Bank decided to cancel US$2,500 million of liabilities that the BCRA had with the Bank for International Settlements (BIS). In this way, it continued with the gradual improvement in the quality of its balance sheet, reducing the cost of its international liabilities and, at the same time, maintaining the necessary flexibility to implement its exchange rate and monetary policy in the most efficient manner.