UVA is the Purchasing Value Unit updateable by CER (Reference Stabilization Coefficient) value that is updated daily, prepared by the Central Bank of the Argentine Republic, based on last month’s inflation, reported by INDEC, taking the price index to the consumer. As reported between the 14th and 15th of each month, the UVA is updated from that date for the remaining 30 current days.
The fixed-term rate is reported by the Central Bank of the Argentine Republic, at a board meeting, when it sets the monetary policy rate for the financial system. Generally, the fixed-term rate for savers is 1% lower than the monetary policy rate. Companies that place money at a fixed term rate in banks generally have lower rates than those achieved by small savers. For example, the Badlar rate for fixed terms greater than $1,000,000 would be around 45% annually, while the TM20 rate for fixed terms greater than $20,000,000 would be around 44% annually. It seems illogical, but the more pesos are offered, the lower the rate.
The fixed term rate, in the last 12 months, had the following evolution:
. – It stood at 37% per year, from May 31, 2021 to January 5, 2022.
. – On that date it went to 39% per year, this value was modified on February 17, 2022, which rose to 41.5% per year.
. – Afterwards, it increased again on March 22, 2022 and rose to 43.5% per year.
. – On April 13, 2022, it increased to 46% per year.
. – The last modification was on May 12, which increased to 48% per year.
In the best scenario and capitalizing interest, if a year ago you made a 30-day fixed term, the result was a rate of 48.9% versus inflation that we estimate at 61% per year.
If you made a 90-day UVA fixed term and renewed it every 3 months, capitalizing interest, the result gave you 55.9% per year, also below inflation of 61%, since the UVA fixed term takes inflation per fortnight and, therefore, forward, has a premium when inflation begins to decline.
Clearly, the UVA fixed term takes advantage of the monthly fixed term and the nominal rate. The fixed term rate is currently at 4.0% per month, while inflation will not drop below 5% in the coming months.
A mix of monthly fixed term at a rate of 4.0% and a 90-day UVA fixed term at a rate of around 5.7% can be a good option to have liquidity every month.
The UVA fixed term, in the June-August 2021 quarter, yielded 10.7%, very similar to what the traditional fixed term paid. In the September-November 2021 quarter, the UVA fixed term yielded 9.5%, again equaling the traditional fixed term. In the December-February quarter, the UVA fixed term yielded 9.9%, very similar to the traditional fixed term. We experienced the great difference in the last quarter where the UVA fixed term yielded 17.1%, taking a wide advantage over the traditional fixed term, which in three months yielded 11.9%.
The government is at a crossroads, it has to lower inflation, but it does not want to raise the interest rate, this brings as a correlate that UVA fixed terms have a better performance than traditional fixed terms.
The stock of time deposits in the financial system amounts to $5,160,219 million, of which only $202,192 million are UVA time deposits, equivalent to 3.9% of total time deposits. We believe that in the coming months UVA fixed terms will be growing in the market.
Banks only offer UVA fixed terms to individuals, while they do not do so for legal entities. In recent times we have received information from some investors who find it difficult to make UVA fixed terms in the different financial entities. It is not comfortable for banks to accept this type of placement, since there is not a public eager to take financing adjustable by UVA plus a rate that, in most cases, adds an additional 10%.
The Central Bank of the Argentine Republic should be more explicit on this point, since, according to our point of view, banks should take fixed-term UVA without any limit to all people who come to their doors, something that in many cases they do not occurs, or there are difficulties in completing it.
conclusion
The UVA fixed term is taking an undiscountable advantage over the traditional fixed term. The large monetary issue causes inflation to take on greater speed, a fall in the demand for money is beginning to be observed, which heralds higher inflation rates and an interest rate that is not enough to keep up with inflation.
The UVA fixed term every 90 days, or the calesita modality, with a fixed term of 90 days, another at 120 days and another at 150 days, with monthly renewals at 90 days, look like a great alternative that takes advantage of the term traditional fixed.
financial analyst
Source: Ambito
