In El Salvador, it was announced that as of September 2, the interest rate for the purchase of recovered homes will be reduced from 6% to 3%, while for homes of up to $25,000 the rate will be 4% for loans granted by the Social Fund for Housing.
The new conditions will apply to the formal sector, for new housing with a price of up to $25,000 dollars, which will offer an interest rate of 4% and zero premium, informed the Salvadoran government.
The builders' guild in El Salvador is preparing a law proposal, which provides for the approval of preferential interest rates on loans for home purchases.
The proposal to be presented by the Salvadoran Chamber of Construction Industry (CASALCO) will be applicable for bank loans to low- and middle-income families who purchase their first home.
As of January 1, 2018, new maximum legal interest rates are in force in application of the law against usury and its reforms.
From a statement issued by the Central Bank of El Salvador:
The new Maximum Legal Rates (Tasas Máximas Legales or TML in Spanish) will come into effect on January 1, 2018, which correspond to the tenth calculation made since the entry into force of the Law Against Usury, reports the Central Reserve Bank.
The Central Reserve Bank has published the ninth calculation of Maximum Legal Interest Rates in Application of the Law against Usury, which will be in effect as of July 1, 2017.
From a statement issued by the Reserve Bank of El Salvador:
The new Maximum Legal Rates (Tasas Máximas Legales or TML in Spanish) will come into effect on July 1, 2017, which correspond to the ninth calculation made since the entry into force of the Law Against Usury, reports the Central Reserve Bank.
It is becoming more and more expensive for the Ministry of Finance to issue treasury bills in the local market, as the growing fiscal deterioration requires investors to demand higher rates in order to offset the risk.
The delicate fiscal situation of the Salvadoran economy is causing more and more concern among investors in the local market, particularly financial institutions, which are ceasing to purchase government securities and increasingly demanding higher rates in order to compensate for the risks involved in financing the State.
The Central Bank has published the sixth calculation of maximum interest rates to be used in the enforcement of the law against usury.
From a statement issued by the Central Bank:
The Central Bank, in compliance with Article 8 of the law against usury, published on January 15, 2016 in two national newspapers and on its website, the legal maximum rates that will be in effect during the period February 1 to July 31, 2016.
The interest rate rise in the US and the perceived risk of the Salvadoran economy have taken their toll on foreign debt bonds, whose yields have risen by about 2% in recent weeks.
This increase in yield of debt securities traded on the international market will be reflected in the forthcoming issues made by the government, which, according to economic analyst Mauricio Choussy, "...
For the first time in nine years, the Federal Reserve has raised the benchmark interest rate, by 0.25%, starting off a process of a gradual adjustment which will make credit more expensive.
After seven years of interest rates at historical lows, signs of recovery in the US economy have led the Federal Reserve to announce the first upward adjustment in the federal funds rate, the main reference rate for structuring interest rates in the United States and around the world.
The issuance of Pension Investment Certificates at a rate of 3% means a charge to future income of contributors in the Salvadoran AFP.
The refusal by the Ministry of Finance to release the documents that justify the decision to pay a fee of 3% on the savings of the AFP entering the 'Fideicomiso de Obligaciones Previsionales' (FOP), was declared illegal by the Institute for Access to Public Information (IAIP), which stated that financial secrecy does not apply to the FOP and the criteria that supported the decision must be revealed.
A request has been made that the interest rate paid by the government for using funds from the Pension Trust Bond rise from 1.3% to 7.5%.
Elsalvador.com reports that "... The leaders of the Committee requested yesterday that a new article specifically state that pension funds earn the passive base interest rate used for investments of 180 days and published by the Central Bank plus 3.5% ..
The productive sectors have indicated that the state budget approved for 2015 is underfinanced and will force the government to raise taxes or issue more debt in order to comply with it.
The approved general budget for the nation is $4.824 billion an amount which according to the private sector can not be covered by current tax revenues, therefore in order to raise this amount there must be either be cuts made to services such as subsidies or social programs, increases or creation of more taxes, or more debt taken on.
The Social Housing Fund wants to revive the housing market by reducing interest rates for the purchase of new or used homes by 5.5%.
In the case of loans to public institutions for the purchase of new houses, the rates will drop from 6.05% to 5.50%, while for private loans for new houses, the rate will be reduced from 8.5% to 8 % for amounts ranging between $31,000 and $125,000.
A bill on preferential interest rates suggested by the industry would reduce the cost of a home loan by up to 50% and boost construction in the country.
In order for the construction sector to recover from a 2013 that ended with a negative number it is necessary to reduce interest rates on mortgage loans so that more people are able to buy a home, therefore the business sector is recommending a proposal for a law on preferential interest, which was proposed more than six years ago.
The Economic Situation report by FUSADES notes that the growth of the Salvadoran economy in the last 5 years has averaged 0.8%.
From a statement issued by the Salvadoran Foundation for Economic and Social Development (FUSADES):
During the last five years (2009-2013), the economy has deteriorated in terms of growth and macroeconomic stability. In the first quarter 2014 performance continued to weaken, showing a clear need for a national agreement which creates the conditions of stability and growth required to tap the potential of Salvadorans.
The proposed reforms involve, among other things, extending the scope of the law to include financial institutions which were not previously covered by it.
The proposal by the Financial System aims to apply a limit on interest rates that can be charged on loans to other entities which until now were not considered in the original law.
Victor Ramirez, head of the Financial System (SSF) commented that there are financial brokers who charge 181% in some segments. He added that "the law of usury has rates, margins, which are extremely high in some segments," but that should be corrected directly in law and not just in the regulation. "Sometimes when legal bodies are made, one does not realize that in practice things 'dance' differently; but I think it requires some reform to improve the application, " he said.