How to survive in the country with the highest rates in the world

Although many did not notice, in just two months the Argentine economy has undergone a transformation. It turns out that the sharp devaluation of the months of May and June resulted in an increase in the interest rates of the entire financial system, which reached the stratospheric levels and they continue there, observing the rest of the planet since the clouds.

We are comfortable with interest rates: Argentina (40%), Venezuela (21%), Iran (18%), Turkey ( 17.75%) and Nigeria (14%) occupy the first places.

How does this situation affect your daily life and what strategies can you follow to cushion the impact? I tell you right now.

Interest Rates: What are they and why are they increasing?

Interest rates can be interpreted as "the opportunity cost of capital". If they are at low levels, people have more incentives to consume goods and services than to save money. If their levels are high, every time we make a purchase, we think how much money we would have if we put it "to work" instead of spending it.

The same reasoning applies to the dollar:
If interest rates are high and impending devaluation forecasts are not abundant, I will have less incentive to buy dollars and more to invest in Lebac, terms fixed in pesos, etc.

Speculating with this response rate policy, the Central Bank has raised in recent months the allocation to those who allocate their money to fixed income instruments in pesos by increasing reserves to increase the amounts in pesos that banks must keep frozen, in order to discourage the purchase of dollars on the foreign exchange market
(which calculates as a currency drain) and fights inflation through the fall of consumption.

If successful, the two swords of Damocles (devaluation and inflation) will be history.

The problem is that in the meantime, collateral damage can seriously affect the majority of the population. Let's look at some examples of these effects and tips to cushion their impact.

Discovered at three-digit rates

The 7-day Lebac pay an annual interest of 59%. As a result, banks need to charge higher rates to lend to their customers in current overdrafts, a modality widely used by merchants and SMEs for short-term financing.

The current TNA (Annual Nominal Rate) for the bank overdraft of front-line banks is on average 69% per annum, a figure that becomes a CFTEA (Total Cash Annual Cost, the rate that ends up paying with all expenses) with VAT of 115,73%. As a result, nearly 10% per month are paid for such operations, while until recently it was paid 5%.

Since financing is seen as an input for SMEs and businesses, there will be little that, at the risk of losing customers, they are trying to transfer that increase to their prices.

For this reason, it is convenient to look for
alternative sources of financing such as subsidized rates for SMEs,
whose current cost is about 29% per annum, less than one-third of the draft

Fees and minimum payment by credit card

Visa and American Express followed the wave of rising rates and established for fixed-tranche purchases (which does not mean "interest-free" but the amount of payments is fixed and does not change from month to month) a level of 79% per year for
payments in 3 months and 94% per year for payments in 12 months.

These costs may be properly listed in the fine print of the installment payment transaction or incorporated into the final price of the product before funding in installments.

In this context, consumption plans at a subsidized rate such as "Ahora 12" or "Ahora 18", in which the state badumes a portion of the cost of the operation in installments, decline in new.

Credit I recommend:

1) Buy in installments only as part of the programs "Now 3, 6, 12 or 18" to avoid an excessive burden of deferring the payment of the purchase and not not pay in installments in other ways to ensure that these are interest free payments.

2) Always cancel the recap total and never the minimum payment. At present, the CFT (total financial cost) to pay only part of the summary and kick it for later the rest amounts to 105% per annum in several entities issuing plastics.

Mortgages at unknown rates

Would you borrow a loan at a growing rate that no one can foresee the evolution? I imagine that you will respond with a clear "no". In fact, already
exceeds 60% the decline in the demand for mortgages at the UVA rate.

If the dollar remains stable,
inflation would be around 30% this year, but if the dollar resumes its uptrend, the price increase could be even higher.

In advance of
Draft budget 2019 prepared by Nicolás Dujovne
An inflation of 17% has been projected and there is no forecast for the value of the dollar because it will be left to fluctuate freely. It is striking that someone projects an inflation number when they dare not speculate what price the US currency will have, given the extreme relationship that exists between the two variables (in economics it is called "pbad" to the transfer at the prices of a devaluation)

Therefore, take a UVA mortgage at this time involves going into debt at a growing rate that we do not know how much it will be in the immediate future. Perhaps it is better to wait for the image to clear up before dreaming of the house itself.

Conclusion

The current scenario is very complicated for ordinary citizens. He must learn to navigate the turbulent waters without being blinded by moments of apparent financial stability.

To pretend that nothing has happened and to continue our financial behavior before the crisis of May and June can result in a very high cost. It is convenient to change habits, study the map and learn about other strategies

"Financialization" has arrived. Financial capital spreads its tentacles on all branches of the economy. Let's pay attention to him and understand his movements so as not to end up being victims of his game.