Together with representatives of other central banks, the Central Bank of Uruguay organized a conference where inflation was the central theme.
He Central Bank of Uruguay (BCU) held the conference on Friday “Inflation targeting as a monetary policy regime: evidence and challenges”to continue working and deepening the function of monetary policy as a tool for the control of internal prices, an issue that is central to the political and economic agenda of Uruguay.
The conference was given by the former president of the Central Bank of Brazil and current head of Representation of the Bank for International Settlements (BIS) in the Americas, Alexandre Tombini; who pointed out two “considerable” challenges for Latin American central banks: in the short term, high inflation that may become persistent; and in the medium and long term, high public debts and low growth.
The vision of specialists
Regarding the short-term challenge referred to inflation, various specialists such as Aldo Lema, Tamara Schandy, Nicolás Cichevski and Diego Pereira They gave their views.
In the first place, Lema highlighted that Uruguay’s big problem in relation to inflation is its “comfort zone”. The economist established that Uruguay’s objective was always not to exceed 8% inflation. “All governments have been tempted to aim for 8%, since it will not exceed 10%,” explained Lema, adding that this is precisely what prevented them from making decisions to drop to levels between 3% and 4%. “An important part of the problem is because of that comfort with that supposedly innocuous 8%, but that has costs,” the economist remarked.
Cichevski agreed with the point of view of a “comfort zone” de Lema and added that “there is no demand from the population to have a lower level of inflation.” “In general, both companies and workers do not receive the benefits that inflation of 2%, 3% or 4% could have,” added Cichevski, referring to the indexation rules – both in salaries and contracts – that end up conspiring against monetary policies to lower inflation.
Pereira, for his part, also agreed with Lema, although he added that years ago it was not taken into account that monetary policies were not aligned with fiscal ones and exchange intervention processes that were not always aligned with the objectives of doing as little as possible the volatility.
Economist Schandy remarked that an alignment is necessary in all policies in order to combat inflation, as well as that monetary policy in recent years has been “inexplicably lax” against 8% inflation levels with negative real interest rates until the crisis of 2008.
“The lack of full consistency in the use of the instruments with respect to the goals also makes it difficult to know and have evidence of how effective monetary policy is with these instruments,” explained the economist. “That leads to a genuine debate about whose mandate the central bank to carry out inflation at the center of the target range, when in reality there is no full alignment with the rest of the policies”, he added.
Source: Ambito
