do not put money without knowing these data

The savers who seek to place their pesos in a fixed term they have a great dilemma regarding which option they should favor in the coming months. That is, if it is Better to turn to the traditional fixed term or the one that adjusts for UVA (inflation).

This dilemma is due to the fact that in the last days of last month the Central Bank raised reference interest rates for 30-day deposits, something that encourages that alternative. Thus, a small saver who makes placements of up to $10 million receives an annual return of 61% TNA, about 8 percentage points more than before.

In this way, now a monthly return of 5.08% is perceived. And in case of renewing everything obtained month by month, for a whole year, it achieves an effective annual rate (TEA) of 81.34%, at a rate of 6.78% per month.

On the other hand, UVA time deposits, whose reserve is at a minimum of 90 days, and adjusted by the prices of the economy, have as “stimulus” that inflation shows a worrying inertial increase in recent months.

In fact, it is estimated that, after the rise in the price of the free dollar in July, inflation last month reached 8%.

UVA fixed terms, with the current inflationary inertia, could be the big winners in August and September.

Fixed terms, with an eye on inflation

As a fact to be taken into account, it should be clarified that the UVA Fixed Term follows the price variation with a lag of 45 days, compared to the time of placement in it. Therefore, it should be remembered that in May inflation was 5.1% and in June 5.3%.

The UVA alternative today emerges as more attractive. Even more so if we consider that the high rise estimated for the National CPI in July ‘spills’ through the statistical drag on the CPI for August. And, consequently, on the UVA of September and October”, details to iProfessional Andres Mendez, director of AMF Economy.

To detail that this means that the rise of Last month’s prices will affect the valuation of the UVA of August and September.

“That bulging spread between the new minimum yields and July inflation, going to hit on the competitiveness of the traditional fixed term in the coming months”, warns this analyst.

In summary, Méndez maintains that if a policy of shock in order to attenuate the inflationary process, “It would be difficult for it to have a negative impact on the UVA yield in August, September and, perhaps, next October. That is to say, in those months the significant price rises registered in July and those expected for the current month.”

In the event that the Government fails to control prices, UVA yields would be interesting and would beat the traditional ones.

In the first scenario, if the Government fails to control prices, UVA yields would be interesting and would beat the traditional ones.

Fixed term UVA vs. Common Fixed Term: Which One Is Right?

When calculating what income can offer the UVA fixed terms and the traditional ones in August, September and October, there are two hypothetical scenarios that can occur and must be taken into account to analyze.

The The first model proposed is that the growth of prices in the economy (CPI) begins a soft landing, and increases 4% per month next September, after having grown 8.5% per month in July and 6.7% in August.

“In this case, and assuming that there is no retouching of traditional fixed-term minimum rates, in October a ‘virtual tie’ would be imposed´ between traditional installations and those adjustable to UVA”, summarizes Méndez.

So, it suggests that those savers who constitute term deposits in August and September “inclines to a fixed term UVABut as the beginning of October approaches, I recommend that they be more cautious and go traditional.”

In a first scenario, if the Government controls inflation, UVA fixed terms would suffer their income from October.

As a second scenario, if the Government controls inflation, UVA fixed terms would suffer their income as of October.

Fixed term in case inflation is “controlled”

Instead, In the second possible case, with a more drastic anti-inflationary strategy, Méndez affirms that no significant changes would be noticed in the yields of the first 60 days, “but next October an abrupt decrease in the monthly growth of the National CPI could hit hard. Thus, in that case, inflation would increase 2% in September.

“In this case, the performance of the fixed terms UVA would be located in October below that offered in the month by traditional placements (4.4% compared to 5.2%), making it advisable from the middle of next September to lean towards making traditional fixed terms”, details Méndez.

The reasoning of this analyst is based on the fact that the minimum duration of a UVA, which is 90 days, requires a broader period than the classic 30 days of a traditional one. This goes beyond the fact that the placements adjustable for inflation are pre-cancelable from the first month, but in that case they offer a lower rate.

“In this context, it might be worth considering whether current minimum yields of the traditional ones would not be high in the event of applying a shock policy, which could be double the expected inflation. And also if the current configuration of UVA fixed terms would be maintained or changed. Faced with this type of question, which will depend on the new macroeconomic strategy, it is feasible that the first scenario proposed enjoy greater sustainability,” concludes Méndez.

The measures taken by the Government to control inflation will determine the fate of time deposits in the coming months.

The measures taken by the Government to control inflation will determine the fate of time deposits in the coming months.

Recommendations of economists for fixed terms

To find out if it is better for savers to carry out a traditional fixed term or one adjusted by UVAiProfessional consulted other experts.

“We continue to prefer the UVA because the real performance of the traditional continues to be negative, while the UVA rewards you with inflation, even more so when it adjusts over the past with July and August, with very high price increases expected,” says Paul Repetto, Head of Research at Aurum.

For its part, Isaiah Marine, Econviews economist, tells iProfesional that the important rise in rates was “a step in the right direction, but the worsening of the inflationary dynamic implies that the traditional fixed terms still fall short compared to expected inflation”.

This is due, according to his calculations, to constituting today a traditional 90-day fixed term implies an effective rate of 15.04%. Thus, for an investment of $10,000, the bank pays 11,504 pesos after 3 months.

“But the jump of the July inflation leaves a high floor for Augustand to this are added the increases in regulated prices already scheduled, so the figure will probably close closer to 6% in the current month,” Marini details.

In this context, this economist considers that UVA-adjusted fixed terms could be yielding closer to 18% in the next 3 months, “a figure clearly higher than that of the traditional fixed term. So, 2022 will close with a base inflation of 90%, so the rates still have a way to go,” Marini concludes to iProfesional.

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