Aurelia Butler

BUENOS AIRES (Reuters) – Argentina’s markets have a wary eye on President Javier Milei’s sprawling reform bill that is grinding through Congress and facing likely amendments in the Senate that will push it back to the lower house and gum up its final approval.The country’s bonds and peso, which rallied strongly in the early months after libertarian economist Milei took office in December, have ceded ground in recent weeks, weighed down by delays to the signature bill and rising political noise.The reform package, ranging from plans to privatize state bodies to measures to encourage investment, is a key plank in Milei’s plans to fix the economy with inflation near 300%, myriad capital controls, and depleted foreign currency reserves.Its fate, therefore, is key for markets which have generally cheered Milei, a former TV pundit who won a shock election last year when he pledged “chainsaw” spending cuts to overturn an entrenched fiscal deficit after years of debt crises.”The rejection of the ‘bases’ bill and tax bill would confirm the political weakness of the government in building a legislative majority,” said economist Joaquín Marque at local financial services firm UG Valores.”That would generate greater uncertainty in various macroeconomic conditions and postpone the economic recovery.”While Milei’s austerity measures have boosted the country’s fiscal position, Argentina’s economy has tanked, with economic activity and construction down sharply, hit by moves including to halt public works. Poverty and dollar prices are rising fast.Consultancy Portfolio Personal Inversiones, meanwhile, said “positive news in the Senate about both bills and a greater inflow of agriculture sales” could boost the peso in widely used parallel markets to get around capital controls.Milei, who only has a minority in Congress, has already conceded the bill is likely to take longer to move forward than his government had hoped, which has already delayed an important pact with regional governors Milei had aimed to sign in May.A government adviser close to Milei, asking not to be named, said that the date of the pact with governors was less important than striking an agreement that would be long-lasting.”We don’t care about the date, it could be June 20, July 9 or Oct. 17,” the person said last week, adding that the reform bill should first get congressional approval. The bill likely faced modification and being sent back to the lower house, he added.”There is no rush to sign the pact… It is preferable to wait for Congress to approve the bases law and to then advance a majority agreement between governors, legislators, union leaders and the church, among other social actors.” More

“It is generally possible to be optimistic when we look at the reasons (for the unanchoring of inflation expectations),” he said at an event organized by the business group Lide in Sao Paulo.Private economists surveyed weekly by the central bank raised their inflation expectations to 3.86% this year, 3.75% for 2025, and 3.58% for 2026 – in the latter case, adjusting the projection upwards after 46 weeks of stability. The government’s official inflation target is 3%.Campos Neto said various factors have been affecting inflation expectations, including uncertainties about monetary and fiscal credibility.He emphasized that time will lead people to understand that policymakers’ decisions are technical, while also saying that it would be a very positive shock to see progress in the discussions that have recently emerged about potential budget deindexation.In Brazil, many mandatory public expenditures are tied to distinct growth rules, complicating their control. In a split decision earlier this month, the central bank cut rates by 25 basis points to 10.50%, following six cuts twice that size. Campos Neto stressed that despite the division, board members unanimously recognized that inflation expectations were unanchored and that this was a very important factor.”We understand that the division generated some noise. What we need to do is communicate that the division was technical, and we have been doing that,” he said.”Our actions will show that (rate) decision is technical over time.”He mentioned that the central bank sees a small correlation between labor-intensive services and price increases, but that the movement is “incipient” and still needs to be better understood. More

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JERUSALEM (Reuters) – The Bank of Israel will have a hard time continuing to lower short-term interest rates as long as inflation pressures persist and Israel’s war against Hamas remains uncertain and drives up government spending, governor Amir Yaron said on Monday.The central bank earlier on Monday kept its benchmark rate at 4.5% for a third straight month, as had been widely expected.Since a 25 basis point rate cut in January, the war – particularly on Israel’s northern border – has intensified, while fiscal spending has swelled along with higher inflation, prompting the central bank to keep rates steady at its February, April and May meetings, Yaron said.”All these parameters are putting more of a burden on the process of interest rate normalisation because we are determined to not allow inflation to diverge,” Yaron said in an interview with Reuters.In January, the central bank had forecast rates falling as much as one percentage point this year and Yaron said that still remains possible. “Things can change quite quickly around here,” he said, adding the rates path will be very data dependent.Yet, “we don’t see the continued convergence of inflation, at least in the short run,” he noted.Israel’s inflation rate edged up to 2.8% in April, still within the bank’s 1-3% target, but the rate had eased to 2.5% in February.Yaron said the April data were highly influenced by the cost of air tickets and the central bank was looking to see whether that was a one-off factor or something more permanent. Core inflation that removes energy and food was also below the headline figure, while inflation expectations in the coming year or so were contained within the target, he said.The rate cut process “is going to be very cautious and very measured” since policymakers seek the inflation rate easing towards 2%, Yaron said.Fiscal policy is also a big concern for the Bank of Israel since war expenses have jumped, leading to a budget deficit of 7% of gross domestic activity in April – above a target of 6.6% that was revised sharply higher in the wake of the war that began after Hamas’s attack on Israel on Oct. 7.Yaron, though, said that while spending has grown, tax revenue – due to a rebound in the economy – has been higher than expected. The deficit, he said, will continue to rise beyond 7% of GDP in the near term but likely end 2024 at current levels as long as there were no “notable security deviations in security expenses.”The central bank sees a deficit of around 5% of GDP in 2025 and a debt to GDP ratio of some 68% of GDP. As such, Yaron said, budgetary adjustments will be needed to keep the deficit under control and some will have to be brought forward should defence expenses rise significantly.S&P last month cut Israel’s long-term credit ratings to A-plus from AA-minus, citing elevated geopolitical risks and projecting a budget deficit of 8% of GDP in 2024. That followed a ratings cut by Moody’s (NYSE:MCO) in February. More