BCRA's Demand for Pesos Fell in October, but There Were Positive Signs: Is Remonetization Starting?

The indicator that the current management of the Central Bank (BCRA) chose to monitor the dynamics of money demand fell in October. However, there were some positive signs, prompting Ámbito to speak with specialists to inquire about the prospects of this key variable for purchasing reserves and injecting pesos to support the desired recovery of economic activity.

Through its Monthly Monetary Report, the BCRA showed that the so-called transactional M2, which includes the circulating pesos in the hands of the public and demand deposits, contracted by 0.4% in real terms compared to September. This negative variation was entirely explained by a 1.3% decrease in deposits, as the circulating amount showed an increase of 0.8%.

It is worth noting that it is the entity led by Santiago Bausili that, in its latest Monetary Policy Report, recalled that "under a regime of control of the money supply, the BCRA adopted the evolution of private transactional M2 as a reference for the dynamics of money demand."

In this sense, the monetary authority seeks that "the money supply (currently generated largely by the purchase of dollars in the exchange market) accompanies demand in the remonetization process." To achieve this, they explain, "the supply should not anticipate that demand nor cause temporary liquidity changes to become persistent pressures on prices."

Regarding this last point, it is important to remember what happened last week when an excess demand for liquidity caused a spike in short-term interest rates to the 30% range, which the BCRA did not seek to cap through a greater supply of pesos. However, this did occur this Wednesday when the Central offered in the simultaneous rounds of BYMA, something it had not done since the beginning of the year.

"Ultimately, the events of these days have shown again that the Government is interested in containing the volatility of rates (given what happened in 2025), although it does not seek to eliminate it completely and wants to maintain discretion to define when, at what levels, and in which liquidity market to intervene," expressed a report from 1816.

Looking ahead, the BCRA projects that "transactional money will continue to recover gradually, in line with market expectations of greater dynamism in economic activity and the continuation of the disinflation process." "The placements of negotiable obligations in the international market to finance domestic investments represent an indication of a potential increase in money demand, alongside the positive impact on economic activity generated as these investments materialize," it asserted.

More Circulation and Fixed Terms, but Fewer Demand Deposits: What Does This Dynamic Tell Us?

The drop in M2 in October contrasted with a monthly increase of 1.5% in total M3, which includes, in addition to circulating and demand deposits, fixed terms. This was driven by a 1.1% growth in time deposits, which primarily came from corporate holdings, as placements by individuals remained stable.

In response to this medium's inquiry, economist Andrés Salinas expressed that "the increase in circulation and time deposits are favorable signs, but the drop in demand deposits reflects a heterogeneous recovery, with a predisposition to hold cash and interest-bearing assets."

"On the side of the increase in fixed-term deposits, we can interpret it as a greater willingness to keep savings in local currency, or conversely, a lower willingness for excess funds to go into dollars or consumption (inflation), something positive or minimally desired by the Government. Here we have accumulated the third consecutive month of growth in real terms. On the other hand, the decline in sight deposits tells us that there is less need to hold transactional pesos, but this contrasts with the increase in the money supply, so it seems more like a change in preference," the specialist elaborated.

In light of this scenario, he understands that "the data shows signals that could be interpreted as compatible with the remonetization process that the Government seeks, but not yet a confirmation of the projection." "For the process to consolidate, an increase in the demand for transactional money would be desirable," he added.

A similar view was held by Gabriel Caamaño, director of Outlier, who highlighted the recoveries of the money supply and M3 as positive, despite the fact that 'the most desirable thing would be for the improvement to extend to transactional M2, which is in a serrated mode'. "This indicates that the speculative component of the demand for money is stronger than the transactional one, although today a good part of the fixed-term deposits has virtual wallets as a counterpart, which is transactional," he noted.

Credit in Pesos: Consumer Loans Continued to Decline Amid Discretionary Monetary Policy

According to the BCRA, a more stable demand for money reduces financial volatility and improves conditions for granting credit in pesos, which in turn "facilitates the transmission of monetary policy to economic activity." According to what was outlined in the Monthly Monetary Report, financing in local currency rose by 0.5% in real terms in October.

This increase was driven by loans for commercial activities and loans with real guarantees (pledged and mortgage loans). Conversely, consumer loans fell again, due to a 1.2% decrease in credit card lines. Personal loans ended an eight-month streak of declines, although the rebound was only 0.1%.

For 1816, the lack of a clear rate corridor is one of the factors limiting the supply of credit in local currency. This is compounded by high delinquency, the official offer of Dual securities with double-digit margins over TAMAR (with CER coverage), and uncertainty regarding both future rates and the presidential elections next year.

On the other hand, the consultancy anticipated that in December the Government will be forced to increase its injection of pesos due to higher seasonal demand for holidays, bonuses, and vacations. "The most virtuous way would be through the purchase of dollars, although that would require the private sector to increase its demand for total assets in pesos (and not just its demand for liquidity). If that does not happen, then to prevent rates from rising, we should see the BCRA or the Treasury very active with expansive open market operations and/or the Ministry of Economy should validate a relevant 'Anchor Point' in the end of November auction," he warned.

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