Monthly Monetary Report

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

Summary

• In October, the national consumer price index of the INDEC for September was released, which showed a monthly variation of the general level of 1.9% and 1.6% for the core component. Although, so far this year, this component slowed down and in the third quarter averaged 1.6% monthly, the BCRA is looking for a more pronounced slowdown. On the other hand, in October there was a greater increase in the price of fuel than expected. In this scenario, the monetary authority decided to give a more contractionary bias to its monetary policy and increased its monetary policy rate – the center of the 7-day pass corridor – by 150 basis points (bps) in October and an additional 100 bps on November 7, bringing it to 28.75%.

• The Central Bank continued to conduct open market operations in order to manage the liquidity conditions of the money market. Thus, in the month, it sold LEBAC in the secondary market for a total of VN $118.7 billion, which more than compensated for the expansion that occurred in the primary tender.

• Interest rates in the inter-financial lending markets remained within the BCRA’s pass corridor and were immediately adapted to the new levels set for the monetary authority’s pass operations. In turn, passive rates maintained a trend of slight growth.

• Loans to the private sector continued their upward trend in real and seasonally adjusted terms. Both the total loans in pesos and foreign currency and only that denominated in local currency, presented a monthly increase of 2%. While most lines increased in real terms, mortgage loans continued to stand out, with seasonally adjusted real growth above 7% for the second consecutive month.

• In nominal terms, mortgage loans accumulated an increase of 77.4% in the last twelve months and, in October, those granted in UVA represented about 90% of the total number of mortgages for families. Since the launch of this instrument, approximately $35,700 million of mortgages have been granted in UVA.

• The granting of loans to the private sector once again exceeded the growth of deposits, so that the liquidity of financial institutions in the segment in local currency (measured as the sum of cash in banks, the current account of the entities in the Central Bank, the net passes with such entity and the holding of LEBACs, as a percentage of deposits in pesos) showed a reduction from 1.2 p.p. to 38.9% of deposits, mainly due to a fall in LEBAC holdings.

• In October, the BCRA decided to stop computing reserve requirements on a quarterly basis in the December-February period. Thus, the calculation for that period will be monthly, as in the rest of the year. This measure aims to achieve stricter control of the liquidity levels of the financial system, in accordance with the restrictive monetary policy that the BCRA has been carrying out to intensify the disinflation process.