The Monetary Policy Committee (Copom) of the Central Bank of Uruguay (BCU) resolved this Tuesday to maintain the interest rate in a 11.25%, a decision that, as they explained, is in line with the contractive phase of the adopted monetary policy.
To reach its decision, the BCU found that although the inflation was located in a 7.61% year-on-year in the past month of April, which represented a slight increase compared to March, which was explained by a rise in the price of fruits and vegetables, offset by a decrease in the price of food and fuel.
In turn, the Copom appreciated that the Underlying inflationwhich does not measure highly volatile prices, held steady at a 6.22%representing one of the lowest levels in the last 5 years, and close to the top of the target range.
Also in April, the average of the two-year inflation expectations indicators was a 7.24%remaining at a level similar to the previous period, and continuing to be a focus of Copom analysis.
The stability in inflationary expectations was decisive in sustaining the MPR
The BCU assessed the stability of inflationary expectationslike “some positive signs in its trend in certain measurements” as a relevant factor when it comes to sustaining the MPR. However, there is still a risk that the current levels of expectations “materialize through the existing indexing mechanisms in the formation of prices and wages“.
“The internalization of the inflation target in the formation of prices and wages is expecteda key element for the convergence of inflation and inflation expectations to the target range,” the BCU clarified.
What aspects did the Central Bank value?
At the international level, the BCU indicated that “there are risks of a slowdown in the growth of economic activity and financial fragility“, and that, on the other hand, “inflation continues to evolve slowly downwards within the framework of commodity price stability,” as well as the reestablishment of global supply chains.
At a regional level, the Copom hopes that “the economy slows down in Brazil“, while observing the conjunctural situation in Argentinawhere the context of the economy in general continues to be delicate.
Talking about Uruguay, expects growth in economic activity during the first quarter of the year, but “not so in the second quarterwhich would be affected by the production supply shock as a consequence of the drought”.
Source: Ambito
