La monetary politics is the set of decisions and measures taken by the monetary authority of a country to influence the cost and availability of money in the economy. Our report examines monetary policy in Argentina and includes:
- The foundations and goals of monetary policy
- Evolution of international reserves
- Evolution of the BCRA's Assets and Liabilities
- Analysis of interest rates, inflation and exchange rates
- The future macroeconomic forecast
Monetary outlook over the past year
Since December 2023, with the assumption of power by the new authorities, a “non-disruptive monetary regime change” (as the Central Bank itself called it) was launched, in order to correct the current imbalances.
The monetary authority focused on endogenous issuance instruments, that is, instruments that are part of the BCRA's liabilities and that accrue interest.
First, on December 18, the LELIQs were transformed into passive one-day "pases", then on July 22, 2024, the suspension of the operation of passive passes was ordered and the "Letra Fiscal de Liquidez" (LeFi) was established as the main liquidity management instrument of the banking system.
The report accompanying this note provides a summary of the most important monetary variables….
INTERNATIONAL RESERVATIONS
These are funds in dollars or other foreign currencies held by the country. They come from exports or loans received by the country and are controlled by the Central Bank. They may include public funds, such as those from loans, and private funds, such as those deposited by savers in the banking system.
Situation as of December 31, 2024
International Reserves experienced variations during the year, influenced by interventions in the foreign exchange market, debt payments and the real appreciation of the peso. Beyond these variations, the trend is upward.
The Central Bank implemented a crawling peg system, which is based on pre-announced daily micro devaluations.
Throughout 2024, the rate was 2% per month, although it was changed to 2025% in January 1. By comparing the rate of devaluation with the level of inflation, the real appreciation or depreciation of the exchange rate can be determined.
The evolution of the daily Multilateral Real Exchange Rate Index of the Central Bank of the Argentine Republic (ITCRM) measures the relative price of goods and services in our economy with respect to those of a group of countries with which commercial transactions are carried out. It allows us to assess the real appreciation of the currency and compare it with other historical moments.
For example, the level of 1.032,50 pesos per dollar on 31/12/20224 is more appreciated than the exchange rate during the entire Fernández and Macri administrations.
BCRA ASSETS
Assets are the goods and rights that the bank has over the rest of the world. The assets of a Central Bank include the following items: gold and foreign currency, credits (to banks and the public sector), securities portfolio and finally its own real estate or furniture.
Situation as of December 31, 2024
It is observed that the asset ends 2024 with a slight growth in international reserves and a decrease in operations due to temporary transfers or advances.
BCRA LIABILITIES
These are the debts that the bank has contracted and therefore include the reserves that private banks have deposited, the deposits made by public administrations and the banknotes and coins in circulation.
Situation as of December 31, 2024
The fall in securities issued by the BCRA, combined with the fall in obligations from the repo market, managed to keep the total liabilities at an almost constant level during the second half of 2024.
IN CONCLUSION: Regarding the situation of the assets and liabilities of the BCRA, the report shows how the composition of both is evolving with the aim of achieving the clean-up of the entity, an objective that would be achieved.
REFERENCE INTEREST RATES, INFLATION, EXCHANGE RATE and EXPECTATIONS
The monetary policy rate indicates the policy bias adopted by the monetary authority to achieve its inflation targets. The report is also complemented by inflation data and the main exchange rates (official, MEP, CCL, blue, card).
Situation as of December 31, 2024
The reference rate level shows a downward trend. The gaps between the different rates remain within the range of 10% to 20% and in relation to the dollar card the gap decreased by almost half with the elimination of the PAIS tax.
The expectations of economic agents indicate a decrease in the level of growth of the value of the dollar (before knowing that the government would modify the monthly devaluation rate to 1%).
