Latin American financial markets found a rare moment of calm on Tuesday, September 16, 2025, as investors braced for pivotal interest rate decisions from the U.S. Federal Reserve and Brazil’s central bank. The tranquil mood marked a sharp contrast to the recent volatility that has gripped the region, especially in Argentina, where President Javier Milei’s economic policies have been under intense scrutiny and political pressure.
Argentina’s Merval stock index surged nearly 3% in Buenos Aires, snapping a three-day losing streak. The official peso also gained 0.5%—its first rise in nine sessions—according to Reuters. This rebound came on the heels of President Milei’s announcement of a draft 2026 budget that, for the first time since his election, proposed significant increases in social spending. The move signals a dramatic shift from the “shock therapy” austerity that defined Milei’s first years in office, which included slashing 53,000 public sector jobs and deep cuts to health, education, and pension budgets.
“The worst is over,” Milei declared in a televised address on Monday, just eight days after his party suffered a resounding defeat in Buenos Aires province elections. “The effort all Argentines are making is worth it,” he added, acknowledging the hardships many have endured. Yet, he urged patience for his libertarian reforms to bear fruit, reminding the nation, “Rome wasn’t built in a day.”
The president’s new budget proposal includes a 5% increase in pension spending, a 17% hike for healthcare, an 8% rise for education, and a 5% bump for disability pensions—all above the rate of inflation, as reported by France 24. This unexpected policy reversal comes after nearly two years of strict austerity measures that, while credited with bringing Argentina’s runaway inflation down from a staggering 211% at the end of 2023 to 33.6% today, plunged the country into a recession and sparked frequent public protests.
Milei’s pivot is widely seen as a response to mounting political headwinds. His party’s poor performance against the center-left Peronists in the Buenos Aires provincial legislature—long viewed as a bellwether for national sentiment—triggered a sharp selloff in Argentine assets and raised doubts about the durability of his economic experiment. The president and his sister, Karina Milei, who also serves as his chief political advisor, have faced public anger, including being pelted with stones during a campaign stop outside Buenos Aires in late August. Allegations of corruption involving state medicine contracts for the disabled have further complicated Milei’s political standing ahead of crucial midterm elections next month.
Despite the softened tone, Milei insisted that fiscal discipline remains non-negotiable. “Failure to balance the nation’s books,” he warned, “would lead South America’s second-biggest economy back into the pit of uncontrolled inflation and the destruction of all hopes for the country.” Yet, he did not provide specific growth or inflation forecasts for the coming year, leaving investors and citizens alike wondering how the government will reconcile increased social spending with its commitment to budget balance.
The reaction in the markets has been cautiously optimistic. The Merval’s 3% jump and the strengthening of the peso suggest that investors are encouraged by the prospect of political stability and a more socially responsive budget. But as The Morning Brew notes, this optimism is tempered by memories of previous volatility, especially after the Peronist victory in local elections triggered sharp drops in Argentine assets.
Beyond Argentina, the broader Latin American region reflected a similar sense of watchful anticipation. Brazil’s real held steady after four days of gains, and its stock index, the Bovespa, rose 0.5%. Most analysts expect Brazil’s central bank to maintain its benchmark Selic rate at a near 20-year high of 15%—at least for now. While the high rate has helped cool inflation, there are growing concerns that it is beginning to weigh on economic growth. Brazil’s finance minister suggested that rate cuts could begin in the coming months, but, as BNP Paribas’ Burak Baskurt told Reuters, “High-yielding currencies are likely to remain supported, we think Brazil’s real and the Hungarian forint are particularly attractive and prefer to stay long the real and forint.”
Elsewhere in the region, Mexico’s IPC index posted gains, while Chile and Colombia’s markets slipped. The Mexican peso and other Latin American currencies traded marginally higher against the U.S. dollar, buoyed by expectations that the Federal Reserve would soon cut interest rates. Weaker U.S. jobs data has led traders to anticipate a 25-basis-point cut from the Fed, which has softened the dollar and increased investor appetite for emerging market currencies, especially those offering high yields.
The so-called “carry trade”—where investors borrow in low-interest currencies to invest in higher-yielding ones—has found new life in Latin America. As The Morning Brew explains, as long as U.S. rates stay steady or begin to fall, high-yielding currencies like Brazil’s real and Argentina’s peso are likely to remain attractive, even amid regional political uncertainty. This support could help stabilize emerging market assets, at least in the short term.
Meanwhile, Zambia’s kwacha surged 1% to a two-week high against the euro following news that the International Monetary Fund had approved a three-month extension of the country’s loan program, providing another example of how international support can shift sentiment in frontier markets.
While the immediate focus remains on the Federal Reserve and Brazil’s central bank, the events in Argentina serve as a vivid reminder of how domestic politics and policy shifts can move markets as much as global monetary trends. Milei’s willingness to reverse course and boost social spending, even at the risk of alienating his fiscal hawk supporters, suggests a recognition that economic stabilization requires not just discipline, but also public buy-in.
For now, Latin America’s markets appear to be holding their breath, waiting to see whether the region’s leaders can strike a delicate balance between fiscal responsibility and social stability. The coming weeks—especially with midterm elections looming in Argentina and potential policy shifts in Brazil—promise to test that balance in ways that will resonate far beyond the region’s borders.
