Monetary Policy Report | March 2015

What monetary policy showed in March 2015: a declining monetary base since December, more Central Bank bills, slowed lending to the private sector, and reserves. June 2015 report.

In general terms, March continued to show the same trends as February. On the one hand, year-on-year comparisons revealed a marked increase in the monetary base, the issuance of treasury bills, and loans to the private sector.

But looking at the same aggregates for the year to date, there seems to be a change in behavior, which does not quite define itself as a trend.

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In that sense, the absolute volume of the monetary base reached its peak in December at $447.994 million. However, it has been gradually declining since then. By the end of March, the drop had accumulated to almost 5 percentage points.

Issuance of letters and placement of BONAC

Regarding the issuance of Treasury Bills , data from early March shows that it continues to rise. This has raised concerns about the Central Bank's ability to continue preventing the growth of the monetary base. In this respect, a new development emerged at the end of the same month concerning the fiscal front.

The successful placement of domestic debt by the BONAC , with a subscription value of $5.000 billion, is expected to give the monetary authority some breathing room in managing sterilization mechanisms.

Loans to the private sector and crowding out

Regarding loans granted to the private sector , a slowdown has been observed in this area during the first two months of the year. However, a slight rebound was recorded in March compared to the first two months. Thus, in January, loans totaled approximately $636.530 billion, in February $648.493 billion, and in March $664.773 billion.

From the Observatory, as we have documented in previous reports, we believe this result is due to a phenomenon commonly known as crowding out . In this case, it occurs indirectly. Financing the public sector translates into the issuance of treasury bills to avoid an increase in the monetary base. This results in less credit available for the private sector.

One factor contributing to the maintenance of this mechanism is the stability observed in our economy's interest rates . The full report—available for download—shows how rates have remained virtually unchanged since the middle of last year.

In other words, the increased placement of Treasury Bills in banks, or, in other words, the increased demand for pesos by the Central Bank, has not resulted in an increase in the corresponding rate.

BCRA International Reserves

Finally, one of the worrying aspects of our economy's performance is the amount of international reserves held by the Central Bank of Argentina (BCRA). The declining trend that had been observed since the end of 2012 has been reversed, but their growth remains stable.

At the time of publication of this report, it is known that reserves have increased significantly, following the shock received from YPF's debt placements.

We invite you to explore these topics further. You can download the full report, with consolidated information for March, at the following link:

Open access, for use and citation

The report is available freely and without charge, under a Creative Commons license (CC BY-NC-SA 4.0):

Informe Mensual de Política Monetaria | Marzo 2015. Informes del Observatorio UNR N.º 6 — Serie Informes de Coyuntura N.º 4, junio de 2015. ISSN 2683-9067 / 2683-9075. Autor: Germán A. Tessmer.