According to reports, the decision of the body led by Miguel Pesce, not to raise the rate this time, was motivated by the concern that, if the rate increase continues, the quasi-fiscal deficit will be fed through the Leliq and make the existing reduced level of credit more expensive. with its consequent handbrake even greater to the economy.
What happened then with savers who had traditional fixed term? according to the economist Aldo Abram, Executive Director of Libertad y Progreso in dialogue with Ambit with the last increase in the interest rate of 75% set by the BCRA, “the truth is that making a fixed term is a very short-term bet to maintain liquidity and not run the risk of volatility of the parallel exchange rate. But clearly it was to lose money because she did not pay off. It is true that if you had it in cash, you would have less purchasing power than before. With this rate you were at least able to match inflation.”
In the latest monetary policy report, the BCRA said it will continue “adjusting interest rates to keep them in positive territory in real terms (…) monitoring the macroeconomic situation and calibrating reference interest rates.” The Central Bank had a margin not to raise rates this time.
For savers, this decision provided certainty: if the Central Bank estimates that inflation will fall in the coming months, the rate will be positive. It is also worth noting that although the rate was neither positive – nor negative – in real terms in September, the annual gain exceeds the expected inflation for 2022.
2. The game between the dollar and inflation
Something that anyone who wants to invest in Argentina looks closely at is the exchange rate. Claudio Caprarulo, Director of the consulting firm Analytica said that “the inflation data for September was below expectations. One of the reasons is the exchange stability that was achieved largely by the contribution of the soybean dollar. A situation that is already being reversed , that responds so much again the selling position of the Central Bank in the foreign exchange market and the government’s response for example with modifications to the stocks and new dollar quotes”.
Aldo Abram agreed and assured that the positive expectation achieved by Sergio Massa “is being lost” and is reflected in the rise in dollars. For Abram, “it still doesn’t seem that the interest rate can beat the dollar unfortunately. I see ahead that it is better to put it in dollars.”
“I think the uncertainty is going to increase and you are also talking about a rise in parallel exchange rates. I see the gap widening. The more uncertainty people have, the less they consume, the less they invest and the more they save in a foreign asset, hedging against the risk of Argentina“, he sentenced.
For Caprarulo, in a complex context such as the current one, “you always have to diversify” at the same time that he maintained that “for small savers, UVA time deposits are a great tool to protect themselves against inflation. And in the face of the risks of a jump in the devaluation, the negotiable obligations in corporative dollars also”.
3. The Stabilization Plan
An element that could be disruptive is also present: the famous “Stabilization Plan”. A classic stabilization plan would take into account the following measures: raise the interest rate sharply, reduce the monetary surplus and regularize relative prices to break the inertia.
Although this time he did not, Caprarulo maintains that the Central Bank should hold “His Monetary Policy of Interest Rate Increase”. Abram agreed: “the move has to be to strongly lower the growth of the money supply to discourage the drop in purchasing power and for that it will have to raise the interest rate strongly. If it does not, it is inflation that will go up”.
But “if we don’t move forward – with the rate hike- a possible reading is that this card is being saved for a stabilization planbecause if it is carried out, the jump in the interest rate of the monetary policy should be important”.
In this framework, savers find themselves involved in a dilemma. September marked a contraction of 5.1% m/m real in the adjustable UVA, being the first fall so far this year. Some feared that there would be a jump in the exchange rate before January and that is why UVA fixed terms fell while traditional ones showed an advance of 1.7% m/m real (+4.1% y/y real).
In conclusion, if the Central Bank does not raise rates and inflation rises, the UVA seems to be the best tool to hedge. Meanwhile, if it is considered that the Central Bank will continue on the path it has been tracing with rates, the traditional fixed term will begin to gain more and more prominence.
Source: Ambito
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