Credit sinks and Massa already has a plan for rates

The accelerated rise of interest rates met the objective sought: avoid a new currency crisis. Currently, the cost of money has remained positive in real terms, as agreed with the Monetary Fund.

Sure, the negative impact This measure was already known in advance: the increase in the cost of credit reduces investment and also consumption. That is why the government evaluates a lower interest rates. However, wait for inflation to slow down before defining the measure.

The effect on economic activity is inescapable. This is demonstrated by the latest official data.

Specifically, the level of credits to the private sector (companies and individuals) carries five consecutive months of decline. This trend is related to the number of months that the official strategy of maintaining a positive interest rate against inflation takes.

During November, the volume of loans to private companies fell by no less than 12.5%, in real terms, discounting inflation, compared to the same month last year. The drop against October was less dramatic, 0.4%, according to a report by the LCG consultancy based on Central Bank records.

Loans to companies contracted 8.6% last month versus November 2021, when economic activity took off strongly after the pandemic, and with interest rates lower than current ones. In fact, today the effective annual rate of fixed terms is already at 107%, but the cost that banks charge to companies and consumers can double that return.

So far this year, bank lines for companies show a contraction of 14.7% (real). If the current level is compared to the peak that credits had in May 2018, just at the time the currency crisis began during the Macri administration, the drop reaches 45%, always speaking in real terms.

Credits: what happens with consumer financing

Los consumer credits they also collapse. In November, the drop -always in real terms- was 15.8% compared to November last year. Against October, there were practically no changes.

Along with the interest rates regulated by the Central Bank, there was a noticeable increase in all bank lines.

The data can be found on the Central Bank website: leading banks are offering their customers personal loans with a CFT (Total Financial Cost) of between 215% and 298% per year. In other words, they triple the expected inflation rate for this year.

In the case of private capital second-line banks -which mostly operate in the interior districts of the country-, the CFT climbs to 355% per year. It is clear that no salary will be able to increase at that same level this year, with which it is very likely that these credits imply unpayable monthly installments.

Rates: the cost of financing with a card, through the roof

All costs to finance consumption “flew” after the latest rate hikes. Some other examples:

After the last adjustment of interest rates, the total financial cost to postpone the payment of the card increased to 132% per year (77% nominal per year and 111% effective per year).

The pandemic was left far behind in time, in which the cost to refinance consumption with cards had remained at 43% per year (55% of CFT), with inflation of 36% for that year 2020.

Very different from what happened more than a decade ago, when it was created, the system of “now 12″ it no longer means buying at 0% interest.

The financial cost, after the last update, has already risen to 102% per year, in line with the inflation of the last 12 months. Also with salary improvements. But it is no longer “free”, logically.

For the “Now 24” (24 installments), the CFT already climbs to 116% per year.

Heading for a recession?

In the economic team, they rule out that economic activity, in the midst of this process, sinks into a recessionary dynamics. The officials consulted deny it. But, it is true, it is about the effect that the monetary contraction is showing in other countries.

In the midst of the global trend of rising interest rates, countries like Sweden or Great Britain are already experiencing a very affected cycle, heading towards recession.

The latest report from the Federal Reserve (US central bank) already warned that there will be a slump in private sector investment in the United States. And that the bullish cycle could get even harder.

In Argentina, which is going through a particular situation not only because of the rise in interest rates but also because of the shortage of foreign currency, INDEC has already said that economic activity slowed down last September -it fell 0.3% versus August-, but now the question is whether this negative sign will be the first of a deeper recessive cycle.

What is clear is that the restrictions that were imposed to avoid a greater evil -an abrupt devaluation in the midst of a weakening of the Central Bank’s reserves- also imply costs for economic activity.

Basically, what is being seen is that the blockade on imports has a double impact: on the one hand, it implies a inflationary acceleration (due to the uncertainty of businessmen in obtaining dollars to import) and, on the other, a drop in consumption level.

The INDEC record looks like an incipient recognition of what is to come: without enough dollars, the economy has more to suffer than to expand.