Although the market was expecting the rate cut announced on Thursday by the Central Bank, one of the measures announced came as a surprise and will have a negative impact on the majority of Argentine savers. The organization has arranged that, starting next Monday, the funds monetary markt, which is commonly accessed via digital wallets, must leave 10% of paid demand account balances with the Central Bank.
“From 15 April the reserve requirement on sight account balances of mutual investment funds will be modified. money marketgoing from 0% to 10%,” specifies the monetary authority in its official communication and explains: “This measure goes in the direction of normalizing the prudential regulatory treatment of accounts of a similar nature.”
This way, The mutual funds most used by Argentines will suffer in two ways the change in monetary policy. On the one hand, like all peso market instruments, they will suffer from lower rates, as this has already begun to be felt in the fixed terms and remunerated accounts in which these vehicles invest. On the other hand, because by forcing the FCI administrators to leave part of the balances at the Central Bank “frozen”, the remuneration that these funds will be able to offer their clients will be lower.
With the latest rate drop, the returns offered by digital wallets have fallen by more than 15 percentage points. For example, in March, the Mercado Pago mutual fund, the app most used by Argentines to remunerate their balance, offered a nominal annual rate of 86.5%, which contracted to an annual rate of 68.8 % that makes this Thursday.
But the decline in yields could be deeper now. “The ones who will suffer will be the investors, because they will receive a lower return. For two reasons. First, because the rate has been lowered, so the returns go down. And second, because now on every 10 pesos that comes in Money market, it is not possible to invest it”, explained economist Matías De Luca, of Empiria Consultores.
“The beneficiary here is the Central Bank, because before the Central Bank had 100 dollars in its possession, it paid interest on that 100 dollars. What the Central Bank does is it lowers the equity base, the tax base on which it pays interest , and ultimately at the same time it continues to liquefy because the interest rate goes down,” De Luca added.
In the same vein, Gabriel Caamaño, of Consultora Ledesma, stated that the Central’s strategy aims at “constant liquefaction”: “The increase in mandatory reserves means that money market funds are one step lower than the rest of the instruments: all “The rates have fallen, but those of these funds will fall even further. The Central Bank’s bet is to further lower the short-term rate and encourage that liquidity to last longer.”
According to the Municipality’s calculations, the annual rate could be less than 55%. In the latest Central Bank Monetary Report, the funds money market In March they were the destination of the pesos released from bank deposits. Interviewed by Clarín, sources in the fintech sector specified that they do not, however, expect a decline in the sums invested in the portfolios. “With the last rate cut in March, increases had tapered off, but the stock of invested pesos continued to grow,” they said in an app.
Source: Clarin
