To the escalation of the price of the Dolar bluewhich this Monday reached the $408is added the latest inflation data of 7.7% for March, which left the traditional fixed term with a notorious worrying negative income for savers and the Central Bank itself, which is analyzing whether it is going to make a new rate hike or if it expects a possible “moderation” of the price increase. The truth is that, in one way or another, economists argue that with this inertia it is necessary to grant the investor an interest that seduces him to stay in pesos in the middle of an election year.
This is because today a traditional fixed term offers a nominal annual rate (TNA) of 78%, which represents a monthly gain of 6.4%. A level that left, at least, a loss of 1.3 percentage points in March.
For analysts this may be an indicator that the BCRA must increase the interest rate in the coming days to make savers more attractive so that they continue turning to deposits in pesos, and are not seduced into dollarizing their money, especially in a year that is politically and economically uncertain.
On the other hand, there is another proposalwho looks at the last Survey of Market Expectations (REM), carried out by the Central Bank itself among various experts, where it is stipulated that inflation for 2023 could be at levels of 110%, while for the next 12 months it would be almost 113%.
Fixed term, rising inflation and falling forecasts
Precisely, this last figure (113%) coincides with that offered today by the traditional fixed term as effective annual rate (TEA), which is obtained by renewing the placement and the interest earned every 30 days, consecutively for a period of one year. So from that point of view, a long-term bank deposit would be proving positive. In fact, in this way the theoretical income every 30 days is equivalent to 9.29%, a figure that exceeds current inflation.
Even, In the REM published at the beginning of the month, the experts’ projections expect the inflation rate to drop in April to settle at 6.3% throughout this period. If this occurs, the fixed term would again exceed the consumer price index (CPI).
The rise in the price of the dollar and high inflation put upward pressure on the interest rate paid by the traditional fixed term.
Furthermore, for May it is estimated that the National CPI will drop to 6.1% and by June it will reach 6%. Therefore, if these forecasts do not change, the traditional fixed term would once again become a winning investment.
A situation that is in doubt as a result of the current inertia towards the rise in food prices and the announcements of increases in rates for public services and transport.
“To this is added that Said market estimates for consumer prices were made before knowing the 7.7% CPI for March, so it can be considered that the REM provides an “optimistic projection” of inflation”highlight iProfessional Roberto Gerettoeconomist and portfolio manager of Fundcorp.
And he completes: “The The main risk of a traditional fixed term is the dollar and inflation, because traditionally the devaluation rate and prices have won the interest rate. Thus, in the long term, the risks of a traditional fixed term are very high, which explains why most placements are for a minimum period of 30 days.”
Fixed term “ideal” interest rate
In summary, the different economists surveyed by iProfesional maintain that the traditional fixed term rate should be higher than the current TNA of 78%, although it is also noted that the Central Bank does not have much room for growth so as not to affect the interest charged to borrowers.
“Today there is only room to go up by 250 basic points, up to 80.5% of TNA, so that the nominal interest rate does not lag so far behind the inflation data. I do not see a very strong rise because the activity data is giving bad from February. Therefore, the Government would not add greater pressure on local companies, in a context of scarcity of foreign currency and greater financial instability due to the electoral year and an adverse international macro scenario for Argentina,” the economist told this outlet. Natalia Butterfly.
Inflation in March of 7.7% left rent paid by a traditional fixed term far behind.
In this sense, Geretto maintains: “There must be a traditional fixed term that manages to compensate the expected inflation in the short term, although in a particular month I can win or lose. However, both the dollar and inflation present some volatility and difficulty in projecting into the future.”
Therefore, it ensures that not only a fixed term must remunerate the inflation expectation, but also compensate the risk that is assumed. “In this way, under a scenario of inflation of 110% per year, if we add a risk premium of 5%, the fixed term rate should at least be located at a TNA greater than 79%, to obtain a TEA of 115%. . However, given the bad surprise of the CPI for March, and with some consultants already estimating projections of 130%, the TNA of the traditional fixed term should be at 87%. That is, offer 7.15% per month”, concludes Geretto to iProfessional.
by the side of Isaiah Marinieconomist at Econviews, the situation is complex: “The Inflationary dynamics got complicated and hard months are ahead. The Central Bank’s rate hike quickly fell short, as demonstrated by the disastrous inflation data for March. In this context, the UVA fixed term once again outperformed the traditional one in terms of performance”.
And he concludes: “We revised our projections, which show us an average inflation of 7% for the remainder of the year. At these levels, I believe that for the traditional fixed term to become attractive again, and at least in line with inflation, The Central should increase the rate by at least 600 basic points, taking it to 84% of TNA, which is equivalent to 7% effective monthly 6.9% effective for 30 days”.
Fixed term: even higher interest rate?
While, Salvador Vitelli, Romano Group economist, notes that today there is “a very large gap between what the fixed term pays now versus inflation. Therefore, the The rate should go to a TNA of 94% so that 30-day deposits pay the same as March inflation. This would imply a sum of 1,600 basis points from the current 78% per year, it is a lot.”
This suggested rate of 94% of TNA represents obtaining a monthly income of 7.73%, which is equal to March inflation. Although it is estimated that this level of prices in the economy would fall in April and the following months, so it is still high enough to set it at that level.
“Treasury left some room to get to that level with the Annual Effective Rate (TEA) of 125.1% that it paid in the last tender, but the problem is that against this inflation it is very difficult for them to come close in rate. In fact, with what he gave in March, the annualized national CPI is 143.6%,” reflects Vitelli.
In summary, the rising monetary issue to cover the purchases of “soybean dollar” and the increase in remunerated liabilities, makes it “inflation unlikely to surprise on the downside, which is an additional risk to the traditional fixed term”, concludes Geretto.-
