Time deposit comeback

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Thanks to the exchange risk insurance offered by Argentine Central Bank, banks were able to get back time deposits. The increase shown by time deposits since the end of May (month of steep falls) is already over AR$1.65 billion. Big investors have taken advantage of interest rate rise and exchange risk insurance offered by Argentine Central Bank to achieve high profitability.

Up to June 27 (last official available data), private sector time deposits had increased 2.8 per cent since the beginning of the month. However, this favorable evolution was more than compensated by a fall of AR$1.85 billion in sight deposit accounts. In other words, part of companys' transactional funds was placed in time deposits.

During the whole month of June, rates hovered around an annual 18 per cent in pesos, while Argentine Central Bank offered dollars in the future between AR$3.12 and AR$3.13. In other words, investors could win close to over 7 per cent in dollars in six months (almost an annual 15 per cent) while taking minimum risks.

With just some small variations, these conditions remain stable in order to keep on attracting time deposit comebacks. Rates have actually dropped slightly to 16.5 per cent and it is estimated that during the next few weeks it will be difficult to see them fall under 16 per cent.

«It's true that things have calmed down during the last few weeks, but it will still take some time to overcome last May's episode, given the great deposit outflow», indicated a local bank executive.

One encouraging piece of information is that, even though big investors were the ones pulling money back into time deposits, during the last two weeks some small investors have followed their path to take advantage of high rates and a quiet dollar. A report by Econviews consulting firm, states that «retail time deposits are recovering and have even reached AR$44.575 billion on June 27, after having hit AR$43.8 billion on June 18».

· Cheap asset

Anyhow, people are still buying dollars at a significant pace, as they perceive it as a cheap asset.

After Congress approval of export tariff bill -and still pending Senators' approval-, the financial market does not expect any substantial change in the market mood. But they assure that many entities ended up with excessive liquidity, and so it is possible that rates start falling gradually.

This will depend on the evolution of deposits during the next days.

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