Rate hike: how much will the fixed terms pay from today

The month of February revealed a process of inflation that rose one step, reaching 52.3% a year as measured by Indec, a trend that forces the entire rate scheme of the financial system to be reconfigured.

Thus, yesterday the Central Bank the Bank raised the interest rate again and brought it to 44.5%: it is the third time in the year that the monetary authority has raised the reference rate, which in the beginning of 2022 was at 38%.

Its basis is given by the reference interest rate set by the Central Bank, through the yields it establishes for its Liquidity Bills (Leliq), which demarcate the path of returns on fixed-term deposits.

The monetary entity led by Miguel Pesce has already made three rate hikes this year that, although they were not enough to make the traditional 30-day fixed-term returns completely attractive, at least they significantly reduced what it loses compared to the change in the general price index of the Indec.

The new upward correction in peso yields raised the prize that will be offered by peso placements will be far from a succulent business but it may come close to protecting the value of savings.

This latest increase in the Central Bank's March benchmark rate left the regulatory floor for fixed terms to 30 days for individuals and up to $10 million in the annual nominal 43.5%

When calculating annualized, that is, when estimating the return that would result from the month-to-month renewal of the 30-day placement plus the rate it accrues - each time renewing both the initial capital and the interest received - the result would be a compound interest of 53.3% of the annual effective rate (TEA).

That is, somewhat closer to expected inflation if we take into account the projections of the Market Expectations Survey (REM) prepared by the monetary authority itself among private agents, which stood at 52.9% for the next 12 months.

The benchmark used by the Central Bank to keep the rate above inflation is unclear. The approved memorandum of agreement with the IMF marks that the rate must be “real positive”.

In its latest Monetary Policy Report, the Central Bank warned that “March inflation will be affected by the price updates of some regulated goods and services such as fuel, gas and electricity, among others, which will exert upward pressure. In addition, the gas and electricity tariff increases resulting from the public hearing on tariff treatment that will be convened in April will be implemented from June. The anticipated increase in regulated prices will allow a gradual recovery of their relative price and will contribute to ensuring sustainable provision of regulated prices in the medium and long term. The tariff update scheme will be adapted to the users' ability to pay, considering the needs of households in situations of greatest vulnerability”.

Along these lines, the monetary entity assured that “it is proposed to establish an interest rate path that ensures the existence of savings instruments that generate positive real returns in local currency and deepens the development of the domestic public debt market. To this end, the BCRA recently increased interest rates on its monetary policy instruments repeatedly.”

Plaza fibres “UVA”

In this context, small savers should also pay attention to fixed UVA deadlines, that is, those placements indexed by inflation. These are not promoted by banks, nor do they manage to convince the most conservative, accustomed to shorter investment terms. But since every time inflation shows signs of complication and the dollar remains relatively calm, they gain ground.

Those who place pesos in inflation-indexed deposits have more than enjoyed the “exchange summer” that so far gave away the peak in agricultural commodity prices and the improvement of expectations due to the agreement with the International Monetary Fund (IMF), which seems to be designed to avoid a new exchange rate jump.

However, UVA fixed terms remain a marginal portion of bank deposits. These are placements lasting at least 90 days, in that sense more distant from the palate of the retail saver. And the banks are not driving them, as the demand for UVA adjusted credit is little less than zero and there are not so many investments to place those deposits into.

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