How changes in interest rates impact credit cards and personal loans

1. The slowdown in general inflation. It is anticipated that the February figure will be closer to 10% than 20%. As well as the positive outlook for core inflation;
2. The moderation of monetary issuance in real terms due to the elimination of monetization of the fiscal deficit and the consequent improvement in the balance sheet of the monetary authority with the placement of BOPREAL.
3. The accumulation of reserves net.
4. The stability of the exchange gap and the constant decline of the future dollar.

Regarding adjustment, this cut once again places real rates “ex ante and ex post in very negative territory,” they maintain.e Personal Investment Portfolio (PPI), bringing them closer to January levels after an improvement in February. “The monthly monetary policy rate has gone from 8.6% to 6.8%, while the Fixed Term rate has fallen from 9% to 5.8%.”assuming 70% of TNA, as reported by Ámbito.

For the market, in general, the elimination of the minimum exchange rate Fixed Term, imposed during the previous administration in April 2020, improves the profitability of banks by changing their intermediation margin from negative to positive. Furthermore, the decrease in rates leads to a reduction in the spread between the rate in pesos and the crawling peg, going from around 655 bps to 478 bps. This decreases the cost of leverage for both exporters and importers. Although it could generate tensions in the official exchange market, it is expected that there will be room for this with the proximity of the heavy harvest.

Now, another question that arises from the move with the BCRA rates which, by the way, triggers the savings of Argentines, is what happens with personal loans and the interest rate on credit cards, Because in this way, the rest of the market rates are expected to show a similar, or even greater, movement.

Credit cards and personal loans

“The first thing that one tends to think is that just as the monetary policy rate and fixed terms fell, the same thing should happen with the financing rate for credit cards and personal loans,” the economist analyzes in dialogue with this medium. Federico Glustein. And with that, how much is the drop rate.

And he adds that “today, up to 1700% is paid in non-bank loans and up to 700% in annual rate credit cards”, so one could intuit that the decrease should “be tall” to compensate for the 35% reduction in the rate. For the teacher, it is totally valid “to think that obtaining liquidity for financial entities will cost less”, so it should have an impact at a lower rate to make it sustainable.

For its part, Damian Di Pacedirector of Focus Market, adds that the rate reduction is regulated, “so each of the banks will determine what the new credit card commission or personal credit rate is.”

The consumer economist maintains that generally if the rate drops, “it tends to give way.” Because? He explains that the market finds more competitive, for example, “get a rate on a bank loan than a personal loan“. So, when the inter rate competes between what is the banking financial system and the non-banking financial system, which are personal credits, personal loans tend to go down.

And as for the commission, he adds, the financing rate, card, the same thing happens, “because that’s why it’s best for you to take out a loan from the bank before financing yourself with the card“And so the different credit and financing tools in the market begin to compete.”So this rate drop should generate a drop in both tools, both credit cards and personal loans.“concludes Di Pace.

In conclusion, lowering the monetary policy rate and fixed terms could have a significant impact on the financing rates of credit cards and personal loans. Although the decrease in the rate is regulated, experts such as Glustein and Di Pace suggest that competition between financial entities, both banking and non-banking, could lead to a reduction in interest rates on these products.

For the financial advisor, Gaston Lentini, conceptually everything would have to go down. This applies to “all financing costs” of the system that will go down. “If we see it from the companies’ point of view, this is good because they will be able to access cheaper credit than they did beforeit is a favorable point,” he adds.

However, the magnitude of the decrease will depend on how each bank adjusts its specific fees and rates, which generates uncertainty about the exact rate of withdrawal, although ultimately, this rate reduction is expected to have a positive effect on the accessibility and costs associated with financing for consumers.