Monthly Monetary Report

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

1. Executive Summary

The BCRA kept the benchmark interest rates unchanged throughout September, considering the evolution of September’s leading indicators and the future outlook for inflation. Thus, the monetary policy interest rate (LELIQ 28 days) remained at 118% n.a. (209.4% y.a.).

The means of payment continued to contract at constant prices. Thus, transactional private M2 in terms of GDP continued to be at the lowest levels in the last 20 years. At the component level, the working capital held by the public in terms of GDP reached a new low, while demand deposits are at levels similar to those at the end of 2019.

With regard to interest-bearing instruments, at constant prices and without seasonality, fixed-term placements in pesos by the private sector registered a contraction, although they persist around the highest values of recent decades in terms of Output. Interest-bearing demand deposits remained largely unchanged. In this context, the broad monetary aggregate (private M3) at constant prices and without seasonality would have registered a contraction in September and would stand at 16.6% of GDP.

In relation to bank credit assistance, the BCRA recently renewed the Financing Line for Productive Investment (LFIP). It should be noted that this line of financing managed to sustain loans to MSMEs in terms of GDP above the historical average.

2. Payment methods

In real and seasonally adjusted terms (s.e.), means of payment (private transactional M2¹) would have registered a contraction of 6.0% in September, and thus would accumulate a fall of around 22% in the year. This dynamic was due both to the behavior of working capital held by the public and of non-interest-bearing demand deposits (see Figure 2.1). In the year-on-year comparison, and at constant prices, the transactional private M2 would be 22.5% below the level of September 2022. As a Product ratio, means of payment would have stood at 7.0%, showing a decrease of 0.1 p.p. compared to the previous month (see Graph 2.2). At the component level, the working capital held by the public in terms of GDP reached a new low, while demand deposits are at levels similar to those at the end of 2019. In both cases, these records correspond to the lows of the last 20 years.

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3. Savings instruments in pesos

The Board of Directors of the BCRA decided to keep the minimum guaranteed interest rates on fixed-term deposits unchanged in the ninth month of year². Thus, the minimum guaranteed interest rate for placements by individuals remained at 118% n.a., which is equivalent to an effective monthly yield of 9.7%. Meanwhile, for the rest of the depositors in the financial system, the minimum guaranteed interest rate persisted at 111% n.a., with the effective monthly interest standing at 9.2%³. The decision to keep the benchmark interest rates unchanged was based on the slowdown in September’s leading indicators and the outlook for inflation in the coming months. The interest rate policy seeks to tend towards positive real returns on investments in local currency, in order to preserve monetary and exchange rate stability.

The private sector’s fixed-term deposits in pesos would have experienced a contraction of 7.0% s.e. in September at constant prices. Despite this decrease, these placements remained around the highest levels in recent decades. In the same sense, as a percentage of GDP they would have stood at 7.1% in September (0.2 p.p. less than in August).

Analyzing the evolution at constant prices of term placements by strata of amount, there is a generalized decrease in all segments throughout the month (see Figure 3.1). The retail segment was the one that registered the sharpest drop, followed by the stratum of $1 to $20 million, with variations in real terms of around -13.2% s.e. and -6.7% s.e., respectively. The drop in deposits of more than $20 million was around 5.4% s.e. and was almost entirely explained by the lower traditional fixed-term holdings of companies (excluding Financial Services Providers (FSPs). Meanwhile, the PSFs slightly increased their fixed-term deposits in the month, given the growth recorded in the assets of the Money Market Mutual Funds (FCI MM), the main agents within the PSFs, towards the end of the month. By contrast, PSF holdings of interest-bearing demand deposits declined slightly in September in real terms (-0.4% s.e.; see Figure 3.2).

The segment of fixed-term deposits adjustable by CER continued to show a real decrease, accumulating 14 consecutive months of contraction. The fall was verified in both traditional and pre-cancellable UVA placements, whose monthly rates of change were -13% s.e. and -17% s.e. respectively (see Chart 3.3). Distinguishing by type of holder, the decrease was mainly due to the dynamics of placements by individuals, which represent approximately 68% of the total. All in all, the balance of deposits in UVA reached $271,455 million at the end of September, which is equivalent to 2% of the total of term instruments denominated in domestic currency.

On the other hand, deposits adjusted for the value of the reference exchange rate continued to decline until the middle of the month, before stabilizing in the second half. Thus, they experienced an average monthly contraction of 30.6% at constant prices, and a fall of 22.6% in real terms between balances at the end of the month. Meanwhile, fixed-term deposits adjusted for the exchange rate reached a balance of $64,088 million at the end of the month, which implied an average monthly contraction of 9.2% at constant prices (see Figure 3.4).

All in all, the broad monetary aggregate, private M3⁴, at constant prices and adjusted for seasonality would have exhibited a monthly fall of 5.4% in September. In the year-on-year comparison, this aggregate would have registered a decrease of 12.5% and as a percentage of GDP it would have stood at 16.6%, 0.1 p.p. below the previous month’s record.

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4. Monetary base

The Monetary Base stood at an average of $6,533 billion in September, which implied a monthly expansion of 1.7% ($110,292 million) in the original series at current prices. Adjusted for seasonality and at constant prices, it would have exhibited a contraction of 8.5%, accumulating a fall of 35.4% in the last twelve months. As a GDP ratio, the Monetary Base would stand at 3.4%, which represents a decrease of 0.1 p.p. compared to the August figure and stands at its lowest value since the exit from convertibility (see Figure 4.1).

On the supply side of the Monetary Base, one of its main factors of monthly expansion was the net purchase of foreign currency from the private sector, favored by a more competitive exchange rate and a new edition of the Export Increase Program (see section “Foreign Currency”). On the other hand, operations with public securities in the secondary market and the execution of put option contracts on National Government securities by financial institutions also generated monetary expansion. These factors were partially offset by the dynamics of monetary regulation instruments and public sector operations (see Figure 4.2).

The BCRA decided to keep its benchmark interest rates unchanged in September considering the slowdown in September’s leading indicators and the outlook for inflation in the coming months. The interest rate on the 28-day LELIQ remained at 118% n.a. (209.4% y.a.), while the interest rate on the 180-day LELIQ remained at 120.5% n.a. (157.5% y.a.). As for shorter-term instruments, the interest rate on 1-day pass-by-passes stands at 111% n.a. (202.9% y.a.); while the interest rate on 1-day active passes stands at 140% n.a. (304.4% e.a.). Finally, the spread of the NOTALIQ was 2.5 p.p. in the last auction. In turn, the monetary authority will continue to calibrate the policy interest rate based on the past and prospective evolution of the general price level, the level of economic activity, and the dynamics of the foreign exchange and financial markets.

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5. Loans to the private sector

Loans in pesos to the private sector in real terms and without seasonality continued to contract in real terms. In September the monthly contraction would have been 6.1% and in the last 12 months they would accumulate a fall of around 17%. The decline for the month was broad-based at the level of large credit lines (see Figure 5.1). As a percentage of GDP, loans in pesos to the private sector would stand at 6.0%, a low level in historical terms (see Figure 5.2).

Commercial lines would have fallen 6.5% s.e. monthly in real terms during September. At the instrument level, loans granted through documents would have decreased 6.2% s.e. in real terms and would be 1.2% below their level a year ago. Within these lines, single-signed documents would have registered a fall of 4.9% s.e., while discounted documents exhibited a fall of 9.4% s.e., influenced in part by the statistical drag left by August. On the other hand, advances would have registered a contraction at constant prices of 7.8% s.e., and would be 18.2% below the level of September 2022.

The Financing Line for Productive Investment (LFIP) continued to channel credit to the productive activity of Micro, Small and Medium-sized Enterprises (MSMEs). At the end of September, loans granted under the LFIP accumulated $7.928 billion since its launch, an increase of 8% compared to last month (see Figure 5.3). Of the total financing granted through the LFIP, 14.4% corresponds to investment projects and the rest to working capital. The average balance of financing granted through the LFIP reached approximately $1,888 billion in August (latest available information), which represents about 17.2% of total loans and 37.2% of total commercial loans.

Recently, the LFIP was extended until March 31. Thus, financial institutions must maintain a balance of financing within this line that is equivalent to at least 7.5% of their non-financial private sector deposits in pesos, calculated based on the monthly average of daily balances as of September 2023⁵.

The LFIP helped to sustain credit to relatively smaller firms. Indeed, distinguishing commercial loans by type of debtor, credit to MSMEs stood at around 1.6% of GDP, above the pre-pandemic record and the historical average. On the other hand, in the case of large companies, the credit-to-GDP ratio rose slightly to 1.2% of GDP, remaining among the lowest records in the last 20 years (see Figure 5.4).

For their part, consumer loans would have fallen 5.5% s.e. at constant prices during the month and would accumulate a reduction of almost 20% in the last year. Within these lines, financing instrumented with credit cards would have shown a contraction in real terms of 5.1% s.e. in the month and personal loans would have fallen 6.3% s.e. in the same period. In year-on-year terms, these loans registered variations of -14.1% and -29.4% at constant prices, respectively.

With regard to lines with real collateral, at constant prices, collateral loans would have registered a decrease of 7.1% s.e., bringing the year-on-year fall to 22.0%. For its part, the balance of mortgage loans would have shown a monthly decrease of 6.8% s.e., with a fall of around 45% in the last 12 months.

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6. Liquidity in pesos of financial institutions

In September, ample bank liquidity in local currency⁶ increased by 2 p.p. compared to August, averaging 86% of deposits (see Charts 6.1 and 6.2). In this way, it remained at historically high levels. This increase is mainly explained by the increase in the holdings of passive passes, LELIQ and public securities for integration.

Regarding the composition of interest-bearing liabilities, in September the LELIQ with a 28-day term represented, on average, 69.2% of the total, increasing their relative share compared to the previous month. The longer-term species, concentrated exclusively in NOTALIQ, accounted for only 0.2% of the September balance. On the other hand, 1-day pass-throughs increased their share of the total number of instruments, reaching a representativeness of 27.1%. The rest was made up of LEDIV and LEGAR, which decreased their participation by 1.1 p.p. compared to the previous month.

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7. Foreign currency

In the foreign currency segment, the main assets and liabilities of financial institutions had a mixed performance. On the one hand, private sector deposits remained practically unchanged and ended September with a balance of US$14,936 million. On the other hand, the balance of loans to the private sector decreased by US$265 million and ended the month at US$3,679 million (see Figure 7.1).

The liquidity of financial institutions in the foreign currency segment stood at 82.2% of deposits, remaining at historically high levels. In terms of its composition, there was an increase in cash holdings in banks at the expense of those in current accounts at the BCRA (see Figure 7.2).

During September, a series of regulatory modifications were made in foreign exchange matters, both in relation to access to the foreign exchange market⁷, the realization of capital contributions or the entry into the country of financial debt through the capital market⁸, as well as the application of collections for exports of goods and the cancellation of principal and interest maturities of certain operations⁹. In addition, certain conditions were reformed for the subscription of Internal Bills of the Central Bank of the Argentine Republic in dollars liquidable in pesos by the Reference Exchange Rate Com. “A” 3500 (LEDIV) at a zero rate¹⁰. On the other hand, the Local Currency Payment System (SML) between Argentina and Uruguay was expanded, which allows payments for certain trade operations and transfers to be made in local currencies¹¹.

Finally, in the first days of the month, the “Export Increase Program” was reestablished, with the aim of increasing the supply of foreign currency. On this occasion, instead of determining a differential exchange rate, it was established that 75% of the equivalent value of the export of the goods reached must be entered into the country in foreign currency and negotiated through the Single and Free Exchange Market (MULC), while the remaining 25% will be freely available¹². Subsequently, the BCRA sanctioned complementary regulations to this decree¹³. It should be noted that, at the beginning of October, this program was extended and extended until October 25, 2023, establishing that the remaining 25% must be used to carry out purchase and sale transactions with negotiable securities acquired with settlement in foreign currency and sold with settlement in local currency¹⁴. Among the new products reached are hydrocarbons¹⁵.

The BCRA’s International Reserves ended September with a balance of US$26,925 million, registering a fall of US$894 million compared to the end of August. This dynamic was influenced, among others, by payments to international organizations and the loss on valuation of external liabilities. These factors were partially offset by net purchases of foreign currency from the private sector (see Figure 7.3).

Finally, after recalibrating it in mid-August, the BCRA decided to keep the bilateral nominal exchange rate (TCN) unchanged against the US dollar at $350/US$ during the month of September. Thus, it had an average increase of 8.8% compared to the previous month (see Figure 7.4).

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Glossary

ANSES: National Social Security Administration.

AFIP: Federal Administration of Public Revenues.

BADLAR: Interest rate on fixed-term deposits for amounts greater than one million pesos and a term of 30 to 35 days.

BCRA: Central Bank of the Argentine Republic.

BM: Monetary Base, includes monetary circulation plus deposits in pesos in current account at the BCRA.

CC BCRA: Current account deposits at the BCRA.

CER: Reference Stabilization Coefficient.

NVC: National Securities Commission.

SDR: Special Drawing Rights.

E.A.: Effective Annual.

EFNB: Non-Banking Financial Institutions.

EM: Minimum Cash.

FCI: Common Investment Fund.

A.I.: Year-on-year .

IAMC: Argentine Institute of Capital Markets

CPI: Consumer Price Index.

ITCNM: Multilateral Nominal Exchange Rate Index

ITCRM: Multilateral Real Exchange Rate Index

LEBAC: Central Bank bills.

LELIQ: Liquidity Bills of the BCRA.

LFIP: Financing Line for Productive Investment.

M2 Total: Means of payment, which includes working capital held by the public, cancelling cheques in pesos and demand deposits in pesos from the public and non-financial private sector.

Private M2: Means of payment, includes working capital held by the public, cancelling cheques in pesos and demand deposits in pesos from the non-financial private sector.

Private transactional M2: Means of payment, includes working capital held by the public, cancelling cheques in pesos and non-remunerated demand deposits in pesos from the non-financial private sector.

M3 Total: Broad aggregate in pesos, includes the current currency held by the public, cancelling checks in pesos and the total deposits in pesos of the public and non-financial private sector.

Private M3: Broad aggregate in pesos, includes the working capital held by the public, cancelling checks in pesos and the total deposits in pesos of the non-financial private sector.

MERVAL: Buenos Aires Stock Market.

MM: Money Market.

N.A.: Annual nominal.

NOCOM: Cash Clearing Notes.

ON: Negotiable Obligation.

GDP: Gross Domestic Product.

P.B.: basis points.

PSP.: Payment Service Provider.

p.p.: percentage points.

MSMEs: Micro, Small and Medium Enterprises.

ROFEX: Rosario Term Market.

S.E.: No seasonality

SISCEN: Centralized System of Information Requirements of the BCRA.

SIMPES: Comprehensive System for Monitoring Payments of Services Abroad.

TCN: Nominal Exchange Rate

IRR: Internal Rate of Return.

TM20: Interest rate on fixed-term deposits for amounts greater than 20 million pesos and a term of 30 to 35 days.

TNA: Annual Nominal Rate.

UVA: Unit of Purchasing Value

References

1 Corresponds to private M2 excluding interest-bearing demand deposits from companies and financial service providers. This component was excluded since it is more similar to a savings instrument than to a means of payment.

2 The interest rates currently in force are those established by communication “A” 7726.

3 The rest of the depositors are made up of individuals with deposits of more than $30 million and legal entities.

4 Private M3 includes working capital held by the public and deposits in pesos of the non-financial private sector (demand, term and others).

5 Communication “A” 7848.

6 Includes current accounts at the BCRA, cash in banks, balances of net passes arranged with the BCRA, holdings of LELIQ and NOTALIQ, and public bonds eligible for reserve requirements.

7 Communications “A” 7838, “A” 7840 and “A” 7851.

8 Communication “A” 7852

9 Communication “A” 7845.

10 Communication “A” 7842.

11 Communications “A” 7834 and “A” 7835.

12 Decree 443/2023 of the National Executive Branch.

13 Communications “A” 7833 and “A” 7846.

14 Decree 492/2023 of the National Executive Branch.

15 Resolution 808/2023 of the Ministry of Energy.