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December 21, 2014
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Fixed-term interest rates to keep rising

Journalists gather outside the Central Bank in downtown Buenos Aires.
By Fermín Koop
Herald Staff
Private banks ‘still have room to grow’ to reach level of treasury notes, says a BCRA official

Interest rates on fixed-income deposits are likely to continue growing over the next few months as a late reaction to the Central Bank’s interest-rate increase in January and February that forms part of a broad effort to snap up excess cash from the market.

Rates in private banks “still have room to grow” in order to reach the level of the LEBAC treasury notes, which were as high as 29 percent this week, a Central Bank official told the Herald.

The expected increase will follow the growth already registered over the last two months on interest rates of fixed income deposits in private banks. As an example, Banco Patagonia increased its rates about five percentage points between March and April. The interest rate for one month fixed income deposits of up to 20,000 pesos carried out at the bank rose from 19.5 percent to 23 percent, while those carried out online rose from 23.5 to 25.5.

“Rates will probably continue growing over the next few months but they won’t reach a figure that is as high as inflation,” Fausto Spotorno, economist and director of the Economic Studies Centre at the Orlando Ferreres consultancy, told the Herald. “Private banks currently offer high rates and they are not in a rush to increase them since they have a good liquidity.

At the same time, the BADLAR rate — the reference for deposits of more than one million pesos — has also grown over the last few months and is still higher than rates of private banks. The rate has maintained a steady growth after the steep devaluation of the peso in January, when it was at 24 percent. The increase continued and the rate reached a high of 27 percent this month.

“The Central Bank doesn’t have a direct influence on the interest rates of fixed income deposits and because of that an increase can take more time to materialize,” Estanislao Malic, University of Buenos Aires economist, told the Herald. “Most of the deposits are only for a month or two so there are deadlines every day and banks have to constantly evaluate the rates they offer.”

A delayed effect

The increase registered so far this year on rates of fixed income deposits came as a delayed effect of the Central Bank’s 900 points increase of interest rates for LEBAC and NOBAC treasury notes. Short-term notes reached an average of 28 percent, while long-term notes got to an average of 30 percent earlier this year.

“Banks took a long time to react to the interest rate increase of the Central Bank but their clients started to demand a higher rate for fixed income deposits,” Agustìn D’Atellis, economist and member of La Gran Makro pro-government group, told the Herald. “Banks didn’t have liquidity problems so they could keep the rates low but now they don’t have the same scenario.”

Despite the delayed hike on rates, people have chosen so far this year short-term fixed income deposits as a more appealing savings option instead of acquiring bonds. In March, fixed income deposits rose 34.5 percent compared to the same month last year and 4.4 percent compared to February, according to the Central Bank.

“Thanks to a higher interest rate, these types of deposits continued growing strongly in March. There were increases on both small and large deposits. It was one of the highest increases over the last 12 months,” the Central Bank said in its monthly report.

People are well aware of this fluctuation and that is why they generally tend to prefer short-term fixed income deposits in order to benefit from the continuous increase of interest rates seen in the last few months. Deposits at Banco Patagonia, for example, are for an average period of 40 days and an average value of 65,000 pesos.

Rates remain stable

The Central Bank’s efforts to vacuum up excess currency in the financial system was met with a high demand this week, even though interest rates remained stable. The monetary authority grabbed up in Wednesday around 14.9 billion pesos once the pesos and dollar-denominated notes are added together.

There was a large demand for the peso-denominated notes with 13.776 billion pesos but the Bank ultimately allocated 13.561 billion pesos, while all offers for dollar notes of US$171 million were snapped up.

All rates were left yesterday at similar levels than last week. Interest rates for 112- and 168-day notes in pesos reached 28 percent and 28.3 percent, respectively, while rates for 210, 315- and 364-day notes were between 28.6 and 29.2 percent. Interest rates for 31-, 91-, 182-and 364-day dollar notes were between 2.5 and four percent.

@ferminkoop
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