When inflation causes savers to lose money

This is one of the devastating effects of inflation on both individuals and institutions. Savers who put their money in banks see their assets erode, regardless of the investment vehicle.

According to the latest data from Bank Al-Maghrib, savings book accounts, the most popular instrument, pay out at a rate of 1.05%. The nominal rate is positive, but the real rate of return is negative, as inflation causes a currency to lose its value. With an inflation rate of 5.3%, as the Central Bank predicts for 2022, money deposited in savings accounts will give a negative real return of -4.25%! For an investment of 10,000 dirhams in early January, the savings portfolio will be worth 9,575 dirhams at the end of the year, i.e. A loss of 425 dirhams.

The situation is less catastrophic for those who put their money in time deposits, and the rates of savings certificates are slightly higher than those of savings accounts. According to Bank Al-Maghrib, 6-month cash certificates currently pay 2.04%. 12-month cash certificates provide a nominal return of 2.62%. The loss in the value of savings put into the DAT is less, but the damage is there, and varies between -3.26% (6 months cash certificates) and -2.68% (12 months cash certificates).

But this is only the hidden part of the iceberg, as one banker pointed out to us, because the bulk of people’s money consists of demand depositsWorld Health Organization Does not produce any yield. There, the loss due to inflation is dry: -5.3%, not counting commissions and fees charged by banks for managing current accounts …

“The situation is indeed unprecedented. Customers do not realize this, because this concept of true rate of return is too complex to comprehend by ordinary human beings. But it must be said, Savings lose value today. But at least those who are reactive to putting their savings into DATs or into savings accounts limit the loss a bit,” our bankers explain.

In the capital markets, the penalty is double!

There is a lot of bank savings that is still, as noted by a fund manager contacted by Media 24, minuscule compared to the Institutional savings It is the main engine of public savings in Morocco. Here, we’re talking about pension money, life insurance, UCITS, and long-term savings that individuals or investors entrust to institutions or fund managers.

Again, the damage is enormous, regardless of which compartment the money is placed in. “Most institutional savings are put into bond market. This sees significant disruptions with portfolio rates of return close to zero or even negative, to which the loss in value due to inflation must be added,” emphasizes our fund manager.

The UCITS Performance Index, which AMMC publishes weekly, shows the extent of the damage: a 0.64% no-facial return for money market funds; 0.64% for short-term bond funds and -0.7% for medium and long-term bond funds.

mode on Stock market Which often serves as a haven or performance cascade for investors in the event of a downturn in the interest rate market, it is more complex. With MASI showing a YTD performance of -10.58%, funds invested in stocks show a YTD performance of -0.07%. Same for diversified funds (composed of a mixture of bonds, money market and stock) whose performance index is also in red: -2.16%.

Added to these near-zero and negative rates of return is this 5.3% inflation, which increases losses.

Lack of confidence and lack of vision behind the big accident

The cause of this damage to the bond and stock market: the crisis and its repercussions on the budget and investor expectations. Since the crisis, Everyone expected a budget slip Which would prompt the Treasury to step up its exit and raise funds from the Treasury bond market. This led to upward pressure on Treasuries prices, which led to a systematic decline in the value of assets and portfolios. The Treasury has tried to reassure the market by talking about its budget margins, but people still don’t trust the future. We live in the absence of vision, which means the disappearance of confidence. they These expectations of market participants regarding the Treasury deficit, as well as inflation This drove prices up, with the supply of BDTs skyrocketing,” explains our asset manager.

And nothing reassures the market, even the Treasury’s commitment to raise 40 billion dirhams in international markets (including bilateral and multilateral competitions). There is a huge gap between what the Treasury is saying and market sentiment. Conditions in the international market are deteriorating with the end of the accommodative monetary policies in the United States and Europe and the rise in interest rates. It is not really known whether or not the Treasury will succeed in this exit. And even if he makes that exit, the pressure on supply in the local market will still be very strong,” our source confirms.

This situation of low yield, inflation expectations, created a kind of panic In the market, our source tells us, which prompted many savers to Redeem their stake in UCITS. This made matters more complicated, forcing managers to sell their assets at very low prices.

“When you go out into the market to liquidate securities, you don’t find buyers, especially for medium and long-term securities (5 years and more). Nobody wants to commit to long maturities. As a result, we are forced to accept price discounts just to get cash and respect the exits of our clients and buyers. The only ones left are institutional investors who are taking advantage of the situation,” explains our fund manager.

Institutions limit the damage to retirement money

Market makers, foundations, pension funds, insurance companies and savings organizations are already trying to limit the damage as much as possible.

First take advantage of Bond prices rise, which was very fast, according to our market source. “The higher rates are good for institutions, as all the new cash they are offering is on much better terms than they were in December,” our source says. The evolution of rates of return on BDTs and bonds allows institutions to reap a small amount of returns.

The 13-week bond saw the rate drop from 1.40% at the end of December 2021 to 1.77% currently. Over the 52-week period, rates decreased, over the same period, from 1.60% to 1.77%. The trend is more pronounced for the 5 and 10 year stock. The former has seen its rate drop from 2.35% at the end of December 2021 to 2.95% currently. The yield on the 10-year stock increased from 2.35% to 2.95%.

This certainly does not nullify the devastating effects of inflation on the value of money and savings, but with such increases, Institutions were able to limit the collapse a bit And save what could be.

And this, given that the institution does not conduct its calculations over a year. “When we talk about negative real returns, we are only talking about 2022. Institutions do not think in such a short term, since they all have a large stock of old securities at very high rates. Hence this reasoning is based on a weighted average rate of The return on the portfolio and not only on the investments made throughout the year.And so will the effect of inflation, if temporary, as expected by Bank Al-Maghrib Minimum pension money »Our fund manager explains.

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