The surge in demand for dollars in Argentina that increased the black-market price to a record 10 pesos per dollar is causing banks to ratchet up deposit rates as they try to lure back savers.
The interest that banks pay for 30-day deposits of more than 1 million pesos, known as the badlar, has climbed 0.81 percentage points to 15.69 percent since March 18, when the government raised a tax on credit-card purchases abroad. The decision helped propel the badlar rate to the fastest two-month increase since February.
While the nation’s deposit rates are highest in the world, the amount of money kept at banks is heading to the first monthly drop since October 2011 as savers try to skirt President Cristina Fernandez de Kirchner’s currency controls and inflation estimated at 24 percent. Argentines are paying a 90 percent premium over the official rate to get dollars, pushing the black-market rate to 9.98 pesos on May 3 and toward a level traders are calling the “Messi dollar” after Argentine soccer player Lionel Messi, whose jersey number is 10.
“There’s no reason why this will stop at the so-called Messi dollar,” Fausto Spotorno, an economist at Orlando Ferreres & Asociados research company, said in a telephone interview in Buenos Aires. “The government’s policy with the dollar is the same as with inflation. They hope that by not talking about it, the problem will go away but the effect is the opposite, it gets worse.”
Economy ministry press official Norma Madeo didn’t respond to a telephone message form Bloomberg seeking comment on the increase in deposit rates and the black currency market.
Messi, a 25-year-old striker who has been named the best soccer player for a record four-consecutive years, plays for the Argentine national team and Barcelona in Spain.
In an attempt to curb capital flight, Fernandez in July banned Argentines from buying dollars except for travel and the country’s tax agency must approve any foreign exchange purchase. On March 18, the government raised the tax on credit and debit card purchases abroad to 20 percent from 15 percent.
Argentines are buying dollars through the black market, known as the “blue” market locally, or through the blue-chip swap, a process where investors buy securities locally and sell them in the U.S., because of the limited investment alternatives to shield pesos from inflation. The central bank’s administered devaluation of the official rate has weakened the peso 15 percent over the last 12 months.
The exchange rate implied from the blue-chip swap market, which is legal, weakened 0.2 percent to a record 9.4365 at 4:40 p.m. in Buenos Aires, according to a Bloomberg index that calculates the difference in price of Argentina’s eight-most traded stocks, including Tenaris SA (TEN) and YPF SA and their American depositary receipts in the U.S. The black market rate gained 0.1 percent to 9.87, according to Ambito.com.
The parallel rates will keep climbing because the government has signaled it will continue implementing currency controls to address the declining value of the peso instead of reducing inflation while losing dollar reserves that are at a six-year low of $39.5 billion, according to Jose Luis Espert, an economist who runs Buenos Aires-based research firm Espert & Asociados.
“It’s clear that people think the dollar is attractive even at 9 because of the macroeconomic framework in which we live,” Espert said in a phone interview. “If the government keeps frightening people the parallel dollar will continue to rise, reserves will continue to fall and the economy will not grow.”
Vice President Amado Boudou said in a May 3 message posted on his Twitter account that the black-market dollar is irrelevant.
“How they exaggerate when talking about the informal dollar,” he wrote. “It’s a marginal issue, very speculative, that has to do with very few Argentines.”
No more than 200,000 people trade in the illegal currency market, Boudou said May 3, according to Ambito Financiero, citing a radio interview with La Red.
Savers withdrawing their pesos from their bank deposits, in part to go to the black market, pushed the badlar last week to a four-month high of 15.69 percent.
That rate is just half the inflationary expectations of Argentines surveyed by Torcuato Di Tella University who see prices rising 30 percent over the next year. The government, whose statistics have been questioned by the International Monetary Fund, says annual inflation was 10.6 percent in April.
It’s unlikely that the government will allow the rate to rise much further as it seeks to boost consumption by keeping borrowing costs below inflation, according to Former Economy Minister Domingo Cavallo, who in 1991 tied the peso rate to the dollar at one-to-one, a policy that lasted until 2002.
“The government has dismissed monetary policy as a tool against inflation and wants to avoid at all costs further cooling of economic activity,” Cavallo posted in his blog May 3. “The government has vowed never to have deposit rates that are higher than inflation.”
Fernandez says Argentina’s economy is growing even as economic activity in Brazil, its biggest trade partner, slows thanks to increased government spending on social programs and policies aimed at stimulating consumption.
The extra yield investors demand to own Argentine bonds instead of Treasuries narrowed four basis points, or 0.04 percentage point, to 1,200 basis points, according to JPMorgan Chase & Co.’s EMBI Global index.
The peso in the official market is forecast to weaken 10 percent by year-end, according to 16 economists surveyed by Bloomberg, the biggest decline in the world. Still, the gap with the parallel exchange rates signals the peso is at least 90 percent overvalued.
While an increase in the deposit rates may draw some pesos into the banking system, the government needs to cut spending, reduce money supply and attract foreign investment for Argentines to gain confidence in the peso, said Jorge Todesca, a former deputy economy minister, who now runs Buenos Aires-based research firm Finsoport.
“Higher interest rates only work in the short term,” he said in a telephone interview from Buenos Aires. “People distrust the peso because there’s persistent inflation, peso printing to finance the deficit and limited supply of dollars. There’s no way to know what the ceiling is for the dollar right now, because there is none.”