The Peso Appreciated in February: Fixed-Term Deposits Yield Historic Returns in Dollars

2024-03-02 15:18:00
The peso appreciated during February (Reuters)

Despite the drop in rates that brought the returns on fixed-term deposits to 110% from the nominal annual 133% with which Alberto Fernández’s mandate ended, in February the humble 30-day bank deposits yielded a historic result if Their performance is measured in dollars. The rate set by the Central Bank (BCRA) is not enough to compensate for the accelerated pace of inflation, but in terms of hard currency they gained 30% thanks to the drop in the financial quotes of the dollar.

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In December, the BCRA cut the rates on 30-day fixed-term deposits from 133% to 110% annual nominal. The decision came hand in hand with the cut of the reference rate, at that time those of the 28-day Leliq and following the elimination of those papers, the passive repos in which banks place the pesos that they cannot grant as loans, with which the Minister of Economy, Luis Caputo, aspires to liquefy monetary liabilities by making them grow at a much lower rate than inflation.

The profit in dollars from the fixed-term deposit during February has no comparison in recent history

That made one of the most popular savings instruments do very little to preserve the value of Argentines’ deposits. In terms of purchasing power. The 9% effective monthly return that savers receive falls short once morest an inflation that private individuals estimate at 15% for what was the second month of the year. After 30 days of deposit, savers can buy fewer things.

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But the hectic Argentine financial and monetary reality created a surprising result for these deposits if their performance is measured in terms of financial dollars, such as the dollar counted with settlement or the MEP dollar (which can be bought and sold almost without obstacles).

“It was to highlight the performance of traditional fixed terms. Although the real rate was negative (-11% monthly once morest CER), the return in dollars, protected by the cash cut with settlement, was greater than 30 percent. In this way, the carry trade strategy recorded its best month in at least 32 years,” analyzed Nery Persichini in a report by GMA Capital.

Nothing beat inflation, but assets in pesos beat different dollars

The key was in the performance of financial dollars. The dollar counted with settlement fell 16.6% nominal in pesos during February. The MEP dollar, for its part, lost 12.28% in the period. Meanwhile, the free dollar lost 13.80% in the month. A 9% return in pesos, as poor as it sounds compared to inflation, implied a significant gain in dollars. At the end of the fixed term, the saver might buy more dollars than before making their deposit.

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“Hand in hand with the real appreciation of our currency, all the bets in pesos paid off in dollars. The only exception was equities, which were exposed to a hard currency correction,” the GMA report continued.

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Of course, the disappearance of the 90-day UVA fixed terms, the instrument that would have best captured this scheme of inflation above the interest rate and interest rate above the rate of advance of the dollar, did not allow retail savers to bet on winner. Now they are only available for at least 180 days, a term very rarely chosen by local savers.

“Beyond the benefits of the strength of the peso, nothing might overcome inflation. The CER benchmark in February increased 22% in pesos and 47% in dollars, leaving the rest of the alternatives far behind. The few lucky holders of UVA fixed terms, the most reserved vehicle by banks, were the only ones who were able to exploit the potential of the acceleration of inflation,” he concluded.

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