Latin America Data Watch: Asymmetric reaction functions

Research evidence excerpt

Latin America Data Watch: Asymmetric reaction functions

sentiment readings in June, July data showed a

left the policy rate unchanged at 12%. Four Board members

reversal. The pullback came despite a renewed disinflation

voted to hold rates, while three favored a 50 bp hike. The

trend, and alongside an uneven sectoral recovery in economic

statement nonetheless underscored persistent inflation pres-

activity.

sures and inflationary risks in the horizon. But exchange-rate

The Government Confidence Index (ICG) compiled by Uni- developments clearly shaped the majority's decision both to

versidad Di Tella fell 6.5% m/m (nsa)—or 5.0% m/m (sa)—to keep rates unchanged and to launch an intervention program

38.8%, unwinding June’s gains and leaving the index 21% to gradually accumulate up to US$4 billion in reserves in

below 2025 year-end levels. The print matches Sep-25 levels order to strengthen the country’s external liquidity position.

and marks the lowest reading of the Milei administration,

In our view, the risk that the 50bp hike advocated by the

though relative to prior governments it remains slightly below

(new) minority eventually materializes remains significant.

Macri-era levels and still above those seen under both Cristi-

But Friday’s decision should matter. The fiscal strategy

na Fernández de Kirchner and the Fernández administrations.

adopted by the incoming administration will likely be a key

Regionally, the decline was broad-based, but the interior

factor in determining the path ahead. While awaiting early

remains the government’s strongest area (41.8% vs. 32.6% in

fiscal announcements from the De La Espriella administra-

AMBA). Our base case assumes disinflation persists, support-

tion, we assume the policy rate is stable until mid-2027.