Monthly Monetary Report

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

Summary

• In September, the Central Bank of the Argentine Republic (BCRA) officially launched the Inflation Targeting Regime, which will begin to be fully operational from January 2017. To evaluate compliance with the targets, the year-on-year variation as of December of the general level of the consumer price index with the greatest geographical coverage published by the National Institute of Statistics and Census (INDEC) will be considered. For 2017, the BCRA’s goal is to bring inflation between 12% and 17%. In turn, it is proposed that inflation continue to decelerate in the following years, reaching 5% in 2019.

• Starting in 2017, the monetary policy interest rate will be that of the center of the corridor of the operations that are implemented at 7 days and will be defined weekly by the Monetary Policy Council on Tuesdays. On the other hand, the LEBACs will be tendered once a month and their maturities will be concentrated on the third Wednesday of each month.

• With the aim of eliminating fiscal dominance and maximizing the degrees of freedom of monetary policy to meet its targets, next year transfers from the BCRA to the National Treasury will continue to be reduced. Thus, consistent with what is included in the 2017 National Budget Project, the annual limit for transfers will be $150,000 million, going from representing 2.1% of GDP in 2016 to approximately 1.5% in 2017.

• The current operational framework for monetary policy will be maintained until the end of 2016. The BCRA’s reference interest rate will continue to be that of the 35-day LEBAC. In September, it was decided to reduce it by a total of 1.5 p.p. to 26.75% through decreases of 0.5 p.p. in the first 3 auctions of the month. Pass interest rates fell by the same magnitude, and the corridor stood at 22.5%-31.5% for 1-day trades and at 23.5%-32.5% for 7-day trades.

• Although the price indices published during the month indicated that the disinflation process continued its course in recent months, both considering the general levels and the core inflation measures, the inflation expectations for 2017 observed in September in the REM are still above the BCRA’s target range.

• 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.

• Practically all interest rates in the money market fell in September, following a trajectory similar to the BCRA’s reference rates. While those of the interfinancial markets continued to be located within the pass corridor, both passive interest rates and those applied to loans granted in the form of documents accumulated falls of around 1.5 p.p.

• Loans in pesos to the private sector accelerated their monthly growth rate to 2%, driven by financing for consumption. Among mortgage loans, the amounts granted of those denominated in Purchasing Value Units (UVA) continued to increase. In September, around $280 million were disbursed, which represented about 30% of the total mortgage loans granted to individuals. Thus, since the launch of this instrument in April and until the end of September, more than $450 million were granted. Meanwhile, loans in foreign currency continued to show great dynamism, concentrated in the line of documents with a single signature. Thus, they accumulated an increase of US$4,950 million (170%) so far this year.