Investors Optimistic About Argentina’s Economic Outlook

By Walter Bianchi

BUENOS AIRES (Reuters) – Investors in Argentina are betting on a potential interest rate cut and a slower ‘crawling peg’ for the local peso, which they hope will prolong a market rally fueled by the pro-market policies of President Javier Milei and expectations for new IMF funds.

The South American country’s libertarian leader has made significant changes, including slashing public spending, rebuilding foreign reserves, and addressing the deep fiscal deficit, while gradually tackling the triple-digit annual inflation.

Despite ongoing challenges, such as strict capital controls, high poverty rates affecting more than 50% of the population, and still low reserves, the positive momentum from last year in bonds and shares has continued into 2025.

A recent repayment of over $4 billion on sovereign bonds has helped improve the administration’s standing, reassuring investors wary of defaults. According to consultancy Delphos Investment, “Argentina’s bonds and stocks kept rising in the early days of the new year, with country risk hitting new lows,” and noted that December’s inflation data is expected to hover around 2.5%, compared to 25% a year earlier.

This decline in inflation could lead to a reduction of the currency’s crawling peg to a monthly devaluation of 1% and a cut in interest rates, currently set at 32%, down from 133% in December 2023.

Analysts are increasingly anticipating a rate cut and a slower devaluation pace. According to Wise Capital, “The market is pricing in a slowdown in the pace of currency devaluation that would be accompanied by a reduction in interest rates.”

GMA Capital Research indicated that lower inflation figures, which are set to be released on Tuesday, could prompt monetary policy changes. They suggested, “As has occurred previously, following good inflation figures, the BCRA (central bank) might consider reducing the monetary policy rate.”

Currently, Argentina is working with a $44 billion IMF program and is in discussions for a potential new loan. Economists like Buenos Aires-based Gustavo Ber hope that additional funds would contribute to restoring market confidence, allowing for stronger reserves and the easing of economic controls.