There are topics that, due to their technicality and level of difficulty, are complex to address for the general public, and even for those who follow the pulse of the economy daily.

The abundant financial jargon, which is usually accompanied by its corresponding graphs and tables, seems to be one of those cases, where a longer-term effort is required to be able to go beyond the surface.

The report attempts to describe the direction that monetary policy has been taking during 2014 and the challenges that arise for the current management.

In the document that we make available for download, we seek to fulfill a double purpose, that of offering an overview of the difficulties that arise this year in relation to the monetary politics, as well as refresh the concepts behind each explanation, in order to make the reading accessible to a broader audience.

Monetary policy in a nutshell

In order to characterize the current scenario, based on the reading of the available data, it could be stated that we are in the presence of one of fiscal dominance.

In technical terms, it means that monetary policy actions are dragged along by fiscal policy. In this regard, the national government has been the main driver of the growth of the monetary base, although it should be clarified that there have been different strategies to deal with the problem by the highest monetary authority.

In the case of the period 2010-2013, which covers the presidency of Mercedes Marcó del Pont, the expansion advanced without major counterweights on the part of the Central. Otherwise, during the mandate of Juan Carlos Frávega, who held the presidency in the period 2013-2014, measures were adopted that sought to strongly reverse this trend.

Given that the placement of public securities in the domestic market is one of the main instruments available to the Central Bank to cushion the effects of an expansion of the money supply, the relationship between the amount of securities issued and monetary base (MB), can be used as an indicator of the type of policy that is being applied. 

In the following graph, you can see the break in the trend that originates around 2013, and which supports the statements in the previous paragraph.

It would seem that the current leadership of the BCRA, led by Alejandro Vanoli, has been located at an intermediate point with respect to the strategy tried by his predecessors; seeking to avoid restrictive measures on consumption, but at the same time, controlling the money supply.

Thus, to avoid inflationary pressures, the BCRA has had to resort to open market operations, issuing a greater number of bills or resorting to repo operations to withdraw money from the economy.

But since everything in the economy has its cost, the sterilization policy is not harmless in terms of the effect it produces on the level of investment, since the BCRA issues a series of assets that compete with the private sector for the funds available basically in the banks.

In the report that we make available for download, the analysis that we have barely mentioned in this article is deepened and, above all, a series of questions that arise from observing the available data on monetary policy are explained.

Likewise, throughout the year we will try to answer these questions, by preparing monthly monetary reports, which allow us to follow the pulse of monetary policy in the short term.

These reports will have four main sections in which they will be analyzed: the evolution of monetary aggregates, expansion factors, the BCRA balance sheet and loans to the private sector.

The invitation is open.