The Central Bank’s bid to keep dollars within the banking system is slowly taking shape as most commercial banks have now started to offer the recently increased interest rates for clients’ fixed-term deposits.
An investment adviser with the Banco Galicia has told the Herald that the improved rates would be available since today. Other banks —though not all— are already offering them.
The move’s importance to bolster Central Bank’s coffers was strengthened this week after plans to raise dollars outside the country with a new bond sale met resistance at New York District Judge Thomas Griesa’s courts. This is because a large part of the dollar deposits that banks manage to capture would ultimately end up at the monetary authority’s foreign currency reserves.
Annual rates offered for three-month dollar deposits already increased in most banks from 2.6 to 3.1 percent in the last few days.
Commercial banks, meanwhile, are getting an extra incenctive to attract their clients’ dollars, as the Central Bank is offering them Lebac notes with even higher interest rates in exchange for every dollar they manage to capture.
“When I was Central Bank president in 2002 we established that dollar deposits could not be loaned back to companies unless they also had dollar-denominated income due their relationship with export markets,” Aldo Pignanelli, who currently advises Sergio Massa’s economic team, told the Herald.
That means that a big part of the dollars captured by commercial banks through fixed-term deposits will stay inside the banking system, as only a small group of exporters and the Central Bank —through its dollar-denominated Lebac notes— could end up purchasing them. When the latter happens, reserves will see a temporary boost.
Slow application
Commercial banks were generally slow to put the new scheme into practice. Although the new rules have been in effect since February 11, some banks were still offering rates below those established by the monetary authority when consulted by the Herald, and none of them were actively promoting the new scheme with visible signs at their locals or advertising campaigns.
Banco Ciudad salesmen said they received no news of improved interest rates for dollar deposits, while the walls of a Banco Nación venue in the City of Buenos Aires still showed rates from October 2014. At the Credicoop, Macro and Santander private banks, 3.1 yearly rates for 90-day deposits are already available, but hardly visible, with analysts saying banks were probably expecting to find higher profit elsewhere.
“Many banks have still not implemented the new scheme,” Marina Dal Poggetto from the Bein & Associates Consultancy Agency, reportedly advising presidential hopeful Daniel Scioli, confirmed.
How much can be captured?
“What the Central Bank is looking for is to retain a larger share of the dollar for savings scheme’s cash inside the banking system,” Dal Poggetto told the Herald. “They won’t get the US$15 billion we had before 2012, when many people decided to flee the country’s financial system, but they might get something,” she said.
But there was still skepticism as to whether the amount of dollars captured would end making much of a difference. Proficio Investment’s Rafael Di Giorno told the Herald that he thought the amounts involved would just end up being “a drop in the ocean,” while Pignanelli argued that confidence levels in what the State would do with those dollars were low, so those rates wouldn’t be enough.
Banco Galicia’s brokers, however, said the amount of people looking into fixed-term dollar deposits wasn’t flat, stating that “it’s not so rare to see people ask about them.”
Central Bank sources highlighted that the profitability offered is almost unique when compared to other countries’ fixed-term dollar deposits, a fact that was not contested by any of the sources consulted by the Herald.
“Keeping your dollars under the mattress has zero profitability. Fixed-rate deposits are a simple investment when compared to buying stock or bonds, and the profits offered here are almost unique. Globally the return rate on these kinds of deposits is close to zero,” a spokesman for the Central Bank said.
He added that commercial banks would be offered special incenctives for new deposits, as the Central Bank would buy their “new dollars” with Lebac notes whose rates could go as high as 4.7 percent (1.3 percentage points above the 3.4 interest rates paid to year-long depositors) instead of the 4.2 percent offered for “old dollars” deposited before the regulatory changes.
But Pignanelli remained unconvinced: “To attract more significant sums the Central Bank would need to offer rates closer to what individual investors can get by buying Argentine bonds, some of which give yields around eight percent today. Maybe at six percent more people would start considering fixed-term dollar deposits,” he said.
Source: Buenos Aires Herald