Monthly Monetary Report

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

Summary

• In September, the average balance of total means of payment (M2) stood at $162,880 million. With the level reached, a new quarter of compliance with the monetary program was completed, with means of payment that continued to grow at a slower rate than nominal output.

• The demonstrated flexibility of monetary policy in the face of past episodes of greater turbulence allowed local variables to continue to show signs of normality through the development of instruments to deal with critical situations constitute an “insurance” that allows the effects of adverse shocks on the money market in particular and on the local economy in general to be mitigated.

• In this context, private sector time deposits continued to increase and in September accumulated a growth of $1,500 million (2.4%), which was made up of both wholesale and retail placements (of less than $1 million). In this way, private sector time deposits accumulated an increase of $7,250 million between the end of last May and September 30.

• Financial institutions continued to show significant levels of liquidity. The bank liquidity ratio – defined as cash in banks, bank current accounts at the BCRA and passive passes for the BCRA – as a percentage of deposits in pesos presented an average level of 21%, similar to the average of the previous month. When also considering the holdings of LEBAC and NOBAC, the broader liquidity ratio remained at 39%. Reinforcing the liquidity reserve nature of these securities, the Central Bank enabled as of the end of September a round to automatically repurchase LEBACs and NOBACs with a residual term of up to 6 months held by banks.

• The Argentine financial system almost doubled its assets in the last four years, a period in which rediscounts for situations of illiquidity practically disappeared. During those years, the public sector became a net creditor of the financial sector (with deposits exceeding loans by almost 4 times) and financing to the private sector (which was half of the public sector in 2004) represents more than double the assistance to the State, whether the Nation, the provinces or municipalities.

• The balance sheet presented by our financial system is solid; evidencing its strengthening over the years from the growth of deposits (almost 12,000 million pesos in the third quarter, with more than half of the increase coming from the private sector); beyond the deep international financial deterioration, which worsened exponentially in the last month of September.

• Total loans to the private sector, in pesos and foreign currency, showed an increase of 2.2% ($2,800 million). Although the current increase was significantly higher than that observed in the previous three months, the total balance continued to soften its pace of expansion, varying in year-on-year terms 31% compared to 33% in the previous month. Driven mainly by advances and personal loans, loans in pesos to the private sector advanced 2.2% ($2,270 million), reflecting an increase of close to 32% compared to the same period of the previous year.