The Fed raised its interest rate by 25 basis points: how it impacts Uruguay

The Fed raised its interest rate by 25 basis points: how it impacts Uruguay

The US Federal Reserve has placed the benchmark rate at between 4.75% and 5% and suggests that “some additional hikes may be appropriate.”

Jerome Powell, Chairman of the Federal Reserve.

As expected, the Federal Reserve (Fed) of the USA once again raised its interest rate 25 basis pointswhich now remained in a range between 4.75% and 5%its highest value since 2007. The decision could have an impact on the exchange rate in Uruguay.

The measure was taken after the financial crisis that shook the world due to the collapse of Silicon Valley Bank (SVB) and the liquidity problems of Credit Suisse, and with the unanimous vote of the officials of the Federal Open Market Committee (FOMC, for its acronym in English), from where they expressed that expect more increases in the future. Its about ninth increase since 2018.

Thus, the US body ratified its restrictive policyanticipated that “any additional hike may be appropriate” in the rate and suggested that the reference rate will be around 5.1% towards the end of this year, that is, 10 basic points above the value that was defined this Wednesday; as well as casualties from 2024.

The recent rise occurs after knowing the last US inflation datawhat in February reached a 5.5% year-on-year. Parallel to the deceleration of the inflationary process in the North American country, the Fed is advancing in the deceleration of the increase in its rates, seeking to appease the general increase in prices.

How the Fed’s decision could impact Uruguay

There is great expectation as to how the monetary policy of the Central Bank of Uruguay (BCU) at your next meeting of Monetary Policy Committee (Copom).

Although the BCU has been maintaining a restrictive policy of high rates to mitigate the inflation, what in February surpassed the 7% YoYspecialists consider that the moderate increase of the Fed leaves the Central Bank without much margin to continue postponing a correction, given that Uruguayan values ​​would be well above those of the United States.

The discussion regarding the levels of monetary policy rate (MPR) in Uruguay, which is located in 11.5%, they are not evasible at all.

There is a lot of discussion about its influence on the depreciation of the dollar against the peso –which in the year has already been negative by more than 2.81%–, precisely because of the greater attractiveness of local currency instruments, which for multiple sectors results in damage to Uruguayan competitiveness in the international market.

If the Central Bank finally adjusts its TPM to the global context given by the Federal Reserve of the United States, a considerable rise in the exchange rate.

However, in parallel to the Fed’s measure, the BCU yesterday received important support from the International Monetary Fund (IMF), which highlighted the need to keep rates high until inflation has been controlled within the levels projected by the authorities.

Source: Ambito

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