First Steps of 'Shock' Therapy Detailed by Caputo

Milei's government detailed the first steps of his 'shock' therapy to rejuvenate the Argentine economy, outlining sharp spending cuts and an overhaul of the FX regime - this was broadly as expected. The policy highlights include:

• A ~50% devaluation of the ARS, putting USD/ARS to 800. This will be facilitated by a crawling peg arrangement, meaning the BCRA will allow for 2% devaluation per month. This will remain the 'official' exchange rate, however black market rates have already reached as high as 1,000 in the wake of Milei's election.
• Sharp spending cuts equating to 2.9% of GDP, aimed at eliminating the primary fiscal deficit entirely in 2024. Measures include cutting by half the number of government ministries and suspending public works programs that are yet to break ground.
• In response, the BCRA have lowered their 1-day repo rate to 100% from 126%, but have confirmed the LELIQ key rate is unchanged at 133%, and will evaluate options for international financing.
• Blunting the impact for those on lower incomes, welfare programs get a boost, with the Universal Child Benefit and Food Benefits both increased.
• Inflation data due later today is expected to show national CPI rising to 155% from 143%, a new series high.