The government celebrates the approval of a much-debated SSS reform
After extended negotiations on the Social Security System reform, the bill returned to the Senate where it was finally approved last Thursday. While the final version of the approved bill was somewhat watered down in comparison to the original project, it still improves the country's long-term fiscal outlook. Although the reform did not include tougher restrictions for the AFAPs to invest abroad, as was often requested by Cabildo Abierto, such a discussion might come up in the not-so-distant future. All this said, however, there is no doubt that in addition to the fiscal benefits, this reform is a political victory for President Luis Lacalle Pou.
In our last report, we speculated that, given weakening activity data and the falling CPI inflation rate, the BCU would, sooner rather than later, start to cut the reference rate, to reduce the risk of a hard landing of the economy. Given this, we see the latest 25bps cut as a mild but still agile reaction to attempt to address that risk. And it probably came not a moment too soon.
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