How much does a fixed term of $100,000 pay with the new rate of 78%?

The Board of the Central Bank ordered yesterday Thursday increase the annual nominal interest rate of Letters of Liquidity (Leliq) to 28 days, to pass them from 75% to 78% nominal annual rate, which represents an Annual Effective Rate (ATE) of 113.20%, in line with or above private consultants’ inflation forecasts for the coming months.

At the same time, it accompanied this progress with an increase in the minimum interest rate that the fixed terms of human persons must payto set it up on a new floor of the 78% annual nominal for 30-day deposits up to 10 million pesos and made by individuals.

The new performance implies a monthly rate of 6.41%, so the performance for the small saver of the fixed term is close to the expected monthly inflation: For the month of March, consultants polled by the Central Bank expect a consumer price index (CPI) of 6.3%. However, the monthly premium does not correspond to the 6.6% reached by the CPI in February.

Performance is actually significantly increased, at least in nominal terms. To give an example, it is possible to accurately estimate how many pesos a saver who deposits $100,000 today will have in 30 days or in a year, as the case may be.

For a deposit of $100,000, the new nominal annual rate of 78% implies a 30-day forward yield of 6.41%. Thus, deposits that are placed from today will return within 30 days $106,410.96 pesos. That is, the original capital plus $6,410.96 of interests.

Until yesterday, with the rate of 75% which was in effect, the same capital invested at the same term yielded $106,164.38 30 days later, or $6,164.38 in interest. The difference between the two rates, one month forward, is 246.58 pesos.

If, on the other hand, the rate is considered in annual terms, the yield of twelve successive mandates of a fixed month now amounts to 110.78%. This effective annual rate is obtained by assuming that the initial principal and interest received each month are reinvested in the next term investment and is slightly lower than the effective annual return of 113% of the reference rate, because twelve fixed terms last 360 days at the instead of a full year.

So who will place today $100,000 –assuming the rate remains stable for a year and the principal and interest are renewed each time each month – you would obtain within 360 days $210,783.34, which is the original principal plus $110,783.34 in interest. In nominal terms, the initial investment is more than doubled.

Annualized, the 75% fixed term that was offered until yesterday yielded $204,996.34 over one year, that is, it earned $5,787 less in interest per year.

For him term deposits private sector, the guaranteed minimum rate was set at 69.50%.

“The Board of Directors of the Central Bank of the Argentine Republic (BCRA) has updated the remuneration of term deposits, raising them to a nominal annual return of 78% in the case of deposits up to 10 million of individual pesos and 69.5% nominal annual for the rest of the fixed terms. At the same time, it kept regulated active interest rates unchanged for preferential lines for MiPyMEs and credit cards,” the monetary authority said.

“To give effect to these decisions concerning fixed-term rates and loans at regulated rates, the prices corresponding to sterilization instruments have been restructured. The overnight repo rate remained unchanged at 72% nominal annual and the 28-day Leliq rate was increased to 78% nominal annual,” he added.

“The BCRA will continue to monitor the evolution of the general price level, the dynamics of the foreign exchange market and monetary aggregates with the aim of calibrating its rate policy,” the statement concludes.

Continue reading: