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ARGENTINA: Itaú Lowers Interest Rate Forecast, In Line With Lower Expected CPI

ARGENTINA
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  • Disinflation continues to be driven by the crawling peg policy, despite the real appreciation of the ARS. Itaú now foresees 2024 inflation coming in at 120% y/y by year-end, down from 125% in their previous scenario. For 2025, they see inflation at 35%, down from 45% previously. In their view, the government’s strategy of obtaining dollar financing to cover debt maturities in 2025 will allow it to maintain the crawling peg policy next year with the objective of speeding up the disinflation process. Also, lower country risk may lead the government to return to international markets next year.
  • Itaú now forecasts nominal exchange rates of 1,030 ARS/USD at YE24 and 1,350 ARS/USD at YE25 (vs. 1,450 ARS/USD previously), lower but still stable in real terms. They foresee the policy rate at 30% for both YE24 and YE25, down from 40% for both years previously, in line with lower expected inflation.
  • Meanwhile, all eyes will be in the mid-term elections next year, when half of the Lower House and a third of the Senate will be up for grabs. While the elections will be held in October, the calendar starts in May with the selection of precandidates for each party. The government should increase its low participation in Congress, but the focus will be on the province of Buenos Aires, where the Kirchnerism still has strong support.
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  • Disinflation continues to be driven by the crawling peg policy, despite the real appreciation of the ARS. Itaú now foresees 2024 inflation coming in at 120% y/y by year-end, down from 125% in their previous scenario. For 2025, they see inflation at 35%, down from 45% previously. In their view, the government’s strategy of obtaining dollar financing to cover debt maturities in 2025 will allow it to maintain the crawling peg policy next year with the objective of speeding up the disinflation process. Also, lower country risk may lead the government to return to international markets next year.
  • Itaú now forecasts nominal exchange rates of 1,030 ARS/USD at YE24 and 1,350 ARS/USD at YE25 (vs. 1,450 ARS/USD previously), lower but still stable in real terms. They foresee the policy rate at 30% for both YE24 and YE25, down from 40% for both years previously, in line with lower expected inflation.
  • Meanwhile, all eyes will be in the mid-term elections next year, when half of the Lower House and a third of the Senate will be up for grabs. While the elections will be held in October, the calendar starts in May with the selection of precandidates for each party. The government should increase its low participation in Congress, but the focus will be on the province of Buenos Aires, where the Kirchnerism still has strong support.