The head of the country’s highest financial entity highlighted “palpable issues”, such as the fall in fuel prices or public rates “that evolved below expectations”, as a sign of this inflationary slowdownwhich he considered that it will continue to fall in its interannual variation.
In any case, although he ratified the target of 6.7% By the end of the year, he did not specify to what extent this fall will be, given that “there may be short-term or transitory issues, such as fruits and vegetables due to the drought.” Even so, he warned that the BCU does not expect the temporary increase in this segment to distort the behavior of expectations.
The decision of the Central Bank generated a wide debate in the economic world. Let the monetary politicsfor Labat, is a “achievement”. Although he acknowledged that “it is not an easy discussion, because we spent many decades in which it seemed that inflation did not matter”.
The dollar will align, Labat anticipated
The freezing of the interest rate at 11.5% reactivated the discussion regarding its influence on the depreciation of the dollar against the peso, which last year was 10.35% and so far in 2023 it has accumulated a 3% drop.
From sectors that are even part of the government coalition, it is criticized that high rates accentuate this phenomenon and enhance the lack of competitiveness of Uruguayan exporters.
“We see an exchange rate with a some misalignment of the fundamentals, of around 8% or 9%. One would expect that over the months this misalignment would recover”, acknowledged Labat.
Although he clarified that, although they expect this trend, “what happens with the exchange rate is going to be what emerges from the market”, given that there is a free floating regimeof which he highlighted its “virtues”.
Growth and reduction of personal income tax and IASS: other details from the head of the Central Bank
The government estimates that Uruguay grew by 5.5% last year and projects a 2% by 2023according to the Minister of Economy and Finance, lily arbeleche. In line with the official’s data, the president of the Central Bank admitted: “We see an economy that slowed down its growth rate.” He in turn, he anticipated that 2023 “It will not be a year of great growth, but it will be with good activity.”
“The current government’s diagnosis is very clear: Uruguay is a small country that, in order to grow, needs to have a very open economy, and a very strong and competitive sector,” Labat said.
The head of the BCU also referred to the recent announcements that the Executive Power will implement a reduction in the Personal Income Tax (personal income tax) and the Social Security Assistance Tax (IASS), which will materialize in the president’s speech Luis Lacalle Pou at the General Assembly on March 2. “For the BCU, what is important is to be clear about the sustainability of fiscal policy and there is no doubt that it is.”
In this sense, he elaborated: “The important thing is to be certain of this sustainable fiscal trajectory and that it will not become an unpayable debt, and that’s out of the question; because of the fiscal rule imposed and because of the behavior of the Minister of Economy”.