Inevitable consequence of the abrupt rise in interest rates applied since the end of July, credit to the private sector registered a fall in August for the second consecutive month, of 2.4% compared to July. This is the most pronounced decline of the year but, far from surprising, the data released yesterday by the Central Bank in its Monthly Monetary Report is consistent with the new approach to monetary policy and the cooling it implies for the economy.
In this sense, the fall in consumer financing was deeper, which is a first confirmation of the brake that consultants who make their own measurements already warn. In this segment, made up of personal loans and, essentially, credit card financing, the reduction in real terms was 2.7% and 3.1%, respectively.
“In this way, the average balance for the month would be 8% below the level of a year ago. Meanwhile, personal loans would have exhibited a monthly fall of 2.7% at constant prices and would be 7.9% below the level of August 2021″, details the BCRA report that clarifies that the interest rate corresponding to Personal loans averaged 74.6% annually in nominal terms in August (equivalent to an effective annual rate of 106.3%), which represented a rise of 9 points from the previous month. In this increase can be found the main cause of the retraction, which will foreseeably have consequences in terms of activity.
“Restrictions on imports due to lack of dollars, rate hikes, less public spending, the entire focus of economic policy is now contractionary, so we expect a slowdown that is probably already happening”, said Miguel Kiguel, director of the consulting firm Econviews.
The official data on the fall in consumer financing is a first confirmation of the brake that consultants who make their own measurements already warn
The increase in the cost of credit did not only affect consumer credit. Production loans and commercial lines also showed a decline, including the promoted Financing Lines for Productive Investment (LFIP), at subsidized rates, which grew in pesos below inflation. In this regard, the BCRA states that “it should be noted that, in line with the increase in reference interest rates, the maximum rate of the line to finance working capital was raised from 58% to 69% annual nominal.; and that corresponding to investment projects went from 50% to 59% annual nominal.
Forced by circumstances, the Central Bank modified its policy of gradual adjustment of the monetary rate at the end of July and, in the midst of the exchange rate run following the departure of the former Minister of Economy, Martín Guzmán, and the difficulties of his fleeting successor, Silvina Batakisto anchor expectations, the head of the monetary authority; Miguel Pesce, applied an increase of 800 basic points at the end of July. That rise, well above those implemented so far, was complemented by another even greater jump in mid-August, already with Sergio Massa at the head of the Palacio de Hacienda. On that occasion, the rise was 950 basis points, which left it at the current levels of 69.5% annual nominal.
Loans for production and commercial lines showed a decline, including the promoted Financing Lines for Productive Investment (LFIP), at subsidized rates, which grew in pesos below inflation
Although the impact on financing for the economy was immediate, the successive increases still look insufficient in light of the inflation rates that do not yield. In this way, the Central Bank is preparing for a new rate adjustment next Thursday, once the inflation rate is known. It is expected that the magnitude of the adjustment will be, on this occasion, much smaller but it will mark a milestone for all of them. It is that a moderate rise of just 200 basis points (at least between 300 and 500 bp is expected), will take the annual nominal rate to 71.5%, which represents an effective rate above 100% per year.
In this sense, the Central Bank report clearly explained that now the entity “accelerated the rate of rise in the interest rate of its monetary regulation instruments and at the same time raised the minimum interest rates of fixed-term deposits. Thus, seeks to promote positive returns in real terms on savings instruments in pesos and preserve monetary and exchange stability”.
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