Wednesday
October 1, 2014

Credit cards cutting back on 12-month interest-free programmes

Wednesday, February 5, 2014

Buying in installments is becoming a thing of the past

By Francisco Aldaya
Herald staff
Installment payments, one of the cornerstones of consumption that has marked the last decade, took another blow yesterday as stores stopped offering — or were in the last days of offering — 12-month interest free options to purchase goods, the will now only offer six-month payments.

A large credit card company sent out a memo to all participating businesses to notify them that offering clients 12-month installments was no longer possible, according to the Union of Argentine Consumers (UCA). The UCA said the decision by the most prominent credit card company is likely to reverberate throughout the banking industry.

A favourite inflation-fighting mechanism for Argentines in recent years — paying for goods in installments — may be drawing to a close, at least for now, as result of the sudden and sharp devaluation by the government in January and the Central Bank’s consequent loan interest rate hikes.

After the 2001-02 financial crisis, businesses sought to lure customers back to stores with interest free monthly payment options. The move made sense for banks that faced minimal risk as interest rates were flat.

Until recently, payment plans of up to 24 months were not uncommon, with consumers rushing to take up a range of products and services that ranged from Aerolíneas Argentinas flights to television sets.

The recent Central Bank hike to interest rates, which will likely be extended further, has made credits pricier and thus left six- and three-month installments the last viable bastions of such payment schemes.

A further development that undermined the viability of year-long payments was the accord reach by Economy Minister Axel Kicillof and technology sector chambers to roll back prices 7.5 percent after companies brought them up between 15 and 20 percent in response to the largest devaluation of the peso since 2002.

Spreading out payments in pesos means extending their aenmic value in the face of inflation above 25 percent, making the purchase of consumer goods a viable saving mechanism that had driven headlines of record-breaking consumption in the last few years.

“The decision responds to the level of inflation and economic uncertainty, which make any type of planning impossible” for businesses, the UCA added.

What is certain among economists is that consumption will suffer a significant blow hereon. Lower-income citizens constrained to conducting purchases in installments of such length will be the most affected in the face of a viable alternative.

“Shortening the terms (of installments) responds directly to the devaluation, but also to the uncertainty over the loss of reserves,” IDESA economist Jorge Colina told the Herald.

Colina added that “exchange rate instability will continue, and this will affect consumption, because durable goods were paid in installments.”

Consumers had already witnessed a big shift in sales strategy recently as many stores cut back on the promotions that had been relatively common recently, leading some economists to speculate that there is likely to be an imminent shift in consumption out of necessity rather than pleasure.

Central Bank Governor Juan Carlos Fábrega set out an unprecedented objective for the institution during President Cristina Fernández de Kirchner’s terms in office: lower inflation in 2014. Such an objective, economist Agustín D’Attellis told the Herald recently, will require less money-printing, of course, but also a more pragmatic approach to the government’s continuously heavy economic subsidies — another obstacle to maintaining current levels of consumption.

@franma1990

  • Increase font size Decrease font sizeSize
  • Email article
    email
  • Print
    Print
  • Share
    1. Vote
    2. Not interesting Little interesting Interesting Very interesting Indispensable






  • Increase font size Decrease font size
  • mail
  • Print




Grupo ámbito ámbito financiero ambito.com Docsalud AlRugby.com Premium El Ciudadano El Tribuno Management

Director: Orlando Mario Vignatti - Edition No. 4268 - This publication is a property of NEFIR S.A. -RNPI Nº 5177376 - Issn 1852 - 9224 - Te. 4349-1500 - San Juan 141 , (C1063ACY) CABA