Monetary stimulus goes straight back to Central Bank

The money Argentina’s Central Bank is pumping into the moribund economy to provide cheap credit is finding its way straight back to its own coffers, bypassing the real economy.
The institution is providing commercial banks with money to give as loans to local companies. But instead of lending the cash, the bank are depositing the vast majority back in the central bank at zero percent interest.

“Some banks are very slow with financing,” Productive Development Minister Matías Kulfas said in a radio interview last week. “They have to be more active with smaller companies. We need much more support from the banks.”

The monetary base increased by 619 billion pesos, or 34%, in the past 30 days. About 91 percent of this increase was held by financial institutions and 79 percent was kept by them in an account at the Central Bank. Money held by the public has only increased 51 billion pesos.

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“It is not that the banks are bad,” said Federido Furiase, director of the consulting firm Eco GO. “The credit channel is broken, so we don’t see the expansion of the monetary base translating into an increase in credit.”