Time deposits return, a 13.5% deal

Argentine administration cannot curb interest rate hike. For more-than-60-day placements in pesos, banks pay 13.5 per cent annual to great investors. For lower amounts, yields reach to 10 per cent. With dollar fenced at ARG$3.20, time deposit re-emerges as a possible alternative. But, for how long will government be able to keep the American currency at that level? It will depend on US crisis impact. Last night, Tokio Stock Exchange fell 2.5 per cent after it was revealed that the second economy of the world was also shrinking. For the time being, conservative investments, like the traditional time deposits, are highly recommended. However, the most difficult task is beating inflation. The real one, of course, which is heading towards 20 per cent annual. Prospects worsen because price hike is going faster and sectors will start asking an increase in real exchange rate in view of internal cost rise. A complex outlook, which calls for extreme caution.

Sharp rise: BADLAR rate development

Banks have drastically increased time deposit rate: in the case of great investors, such yield has reached a top level of 13.50 per cent annual. Small-sized savers also receive more, though the average does not go beyond 10 per cent.

This rate increase for depositors coincides with domestic market's woes and with investors' caution. In fact, for the first time in the last four years, private sector deposits have plunged. According to official figures from Argentine Central Bank (BCRA, in its Spanish acronym), deposits by the public and corporations have decreased 0.8 per cent in August, though this reduction has been offset by increase of public sector placements, which reached to 6.9 per cent.

According to BCRA, private banks have paid an average 11.90-per cent annual rate for 30-day deposits, raising such yield to 12.10 per cent for 60-day terms (small-sized savers as well as great investors are included). Public banks pay 4 points less because they receive deposits from national State and other organizations.

BCRA officials state that such strong yield rebound is exaggerated and thus, temporary: "We are pumping liquidity into market through different ways. The second two weeks of September should be much calmer because most banks have surplus liquidity," BCRA sources explained.

Stagnation

Despite this rate hike, people are reluctant to make new time deposits or to renew the ones falling due. "We pay rates above market average and we've doing quite well. But now, deposit growth has stagnated, even paying rates hovering around 15 per cent," a second-line entity explained.

There are different reasons explaining investors' caution to make time deposits:

Although dollar has stabilized at ARG$3.19, there's still the feeling that the American currency may undergo new adjustments after presidential elections. In that case, higher rates would not be enough to offset dollar rise. In other words, profits may be reaped in domestic currency, though tying or even losing in hard currency.

Inflation rise also works against. Although rates have been adjusted upwardly, prices have been climbing at a faster pace lately. Therefore, these rates are still not enough to avoid loss of purchasing power.

Closeness of presidential elections is another factor savers take into account. Companies have postponed investment plans and banks are favouring liquidity; something similar seems to be happening with savers.

BCRA will continue this week with its measures to inject pesos in market: mainly active repos in one and seven days and new auction sales to repurchase LEBAC and NOBAC (BCRA's Bills of Exchange and Securities). For its part, ARG$700-million LEBACs fall due tomorrow and BCRA will renew them just partially.

BCRA has managed to put a ARG$3.20 cap on dollar (it has not moved from ARG$3.19 during the last days) and it has also behaved aggressively in one-day credit market, where it has thrown a large amount of pesos. The idea is to prevent rates from going beyond 12 per cent annual. But it's getting harder for BCRA to control rates of transactions from 30 days on.

The main consequence of funding cost is credit increase. Credit lines for the public post three-point rises, taking into account personal as well as mortgage loans.

Market has also hardened for companies. It's almost impossible nowadays to get peso-denominated fixed-rate credit facilities. The ones offered at variable rate are much more expensive than July's.