Time deposit rates at 18 per cent

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Banks strive to recover lost deposits. Those brave enough to open a 90-day time deposit are offered up to 18-per cent rates. In the meantime, dollar continues pulling back, after closing yesterday at ARG$3.04 in exchange agencies. The truth is that both those betting on dollar and rate will lose. With an annual inflation heading towards 30 per cent, both options entail a fall in purchasing power. What's once again evident from these annual 18-per cent yields in Argentine pesos is how unreal an 8-per cent official annual inflation is.

A falling dollar and few expectations of significant rise taking place within the next few months brought about attractive opportunities to take advantage of rates in Argentine pesos, which have doubled in the last 45 days. Not only big investors but also small savers can currently get annual rates close to 20 per cent, provided they accept terms of over 90 days.

Yield increase is connected to uncertainty caused by conflict between government and farm. This was reflected by a strong dollar demand and, at the same time, deposit withdrawals. Entities did not doubt to increase rates in order to recover at least part of these resources. Only partially did they manage to make people return to time deposits. Up to now, only institutional investors (retirement and pension funds administrative bureaus and insurance companies) are opening new time deposits, while small savers move more cautiously and buy dollars, as they perceive fall of American currency's value (it went from ARG$3.20 to 3.04 in just one month).


Different options are available in order to take advantage of rate increase. However, final yield will depend on the term accepted for freezing funds.

One of the main alternatives currently offered by the financial system and capital market are government bonds. Yields are already at a 25-per cent annual rate in Argentine pesos, but terms are considerably longer. Of course, it is also possible to sell them at secondary market any time. Bonds adjusted by CER have been lagging behind due to government's index manipulation and they experienced a strong price decline (fluctuating between 15 and 20 per cent during the first semester). Medium-term bonds, the most sought in market, are PRE9 (paying capital on a monthly basis since 2008) and BOGAR 2018.

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