Interest rates on deposits Argentina are rising to the highest level in 13 months

Interest rates on deposits Argentina are rising to the highest level in 13 months as banks try to meet a year-end demand for cash that the monetary authorities are trying to meet printing pesos.

BADLAR call rate that banks pay on deposits of more than 1 million pesos ($ 252,000), held from 30 to 35 days rose to 11.25 percent on December 10, the highest since the 03 November 2009, and up to two-year low of 8.81 percent in May. The BADLAR, which is used as a reference point for Argentina yield corporate bonds, compared with 0.26 percent the interbank rate of one month's supply of London, or Libor, in U.S. dollars.

The largest economic expansion since 2005 is driving the demand for cash that companies need to pay mandatory premiums in December and that tourists used to travel in the southern hemisphere summer. Banco de la Ciudad de Buenos Aires Federico Sturzenegger president said in October that the bills were scarce.

"There is a struggle for the weights of the banks, for physical bills," said Boris Segura, a Latin America economist with Nomura Securities International Inc., in an interview from New York. "That is pushing the BADLAR."

the nation's cash in circulation and current accounts and savings, as measured by M2 monetary indicator, increased by 2 percent in the week to 242.1 billion pesos on December 3, according to the latest data from the central bank. The central bank raised its M2 target year-end to 254.7 billion pesos in August, after exceeding its original goal.

Rate Outlook

BADLAR rate can rise as high as 15 percent by the end of this year before falling to 11 percent in March, said Mariano Kruskevich, an analyst at SBS Sociedad de Bolsa SA, a brokerage firm in Buenos Aires.

"The movement we're seeing today with the BADLAR corresponds to the seasonal year-end," he said.

BADLAR reinforces a growing rate government bonds in dollars maturing in 2014 and 2015 that are linked to bank rate, SBS said in a note yesterday. 2014 bonds was 15.7 percent yesterday, according to the price of MBA Lazard.

The BADLAR has become the preferred reference for floating-rate corporate debt sold in the last two years, to replace the reference stabilization coefficient, or CER, which is related to the consumer price index official said Kruskevich into an e-mailed response to questions.

Inflation data

Economists and politicians including Vice President Julio Cobos reports have questioned the government's inflation since 2007, when then-President Nestor Kirchner began changing personnel in the national statistical institute. Kirchner, died in October.

President Cristina Fernandez de Kirchner, the widow of former president, he brought in the International Monetary Fund officials last week to offer advice on creating a new national inflation index.

The government said annual inflation of 11.1 percent in October, less than half the estimated 25 percent of Nomura, Goldman Sachs Group Inc. and Credit Suisse Group AG.

The National Statistics Institute will publish the November inflation report today at 2 pm New York time.

The extra yield investors demand to hold government bonds in dollars rather than U.S. Treasuries contracted two basis points, or 0.02 percentage point, to 496 at 8:26 am New York time, according to JPMorgan Chase & Co.

Credit Default Swaps

The cost of insuring Argentine bonds against default for five years fell 4 basis points to 631 yesterday, according to CMA DataVision. Swaps credit-default pay the buyer face value in exchange for the underlying securities or the cash equivalent of a government or a company fails to meet debt agreements.

The peso fell 0.1 percent to 3.9728 per dollar today. Badlar rate dropped to 11 percent on 13 December. The interbank lending rate a day today was unchanged at 10.5 percent, the highest since Nov. 1. The type of call is up 10.1 percent at the end of last week.

Guarantees linked to economic growth rose 0.08 cent to 13.95 cents. Argentina's economy may expand as much as 9 percent this year, the central bank.

Badlar Central Bank rate is likely to decrease in January, before increasing to 12 percent in late 2011, Nomura Securities said.

"Things will normalize after the holidays," he said.