He President of the Central Bank of Uruguay, Diego Labat, considered that the interest rate cut decided yesterday “is a easy to read sign for economic agents and anticipated “good projections” That the inflation and expectations “will continue to give way”, which could lead to new reductions in the coming months.
When justifying the new Monetary Policy Rate, set by the Copom at 10.75%, Labat specified that the latest inflation data was key. “In the year ended June, inflation was at 5.98%, within the target range. These levels have not been reached since 2017,” he said at a press conference.
Looking ahead to the coming months, Labat clarified that “the future rate movements they depend on those trends that we see today continue to consolidate”. Regarding yesterday’s 50 basis point reduction, he stressed that in any case “The Bank continues with a relatively high rate, but it decides to lower it as we get closer to the objectives we seek”.
He argued that the contractive policy seeks “protect the value of the national currency, which ultimately is to protect the money that each of the Uruguayans have in their pocket” and compared it with what happens in countries of Europe, North America and the vast majority of Latin America.
“It is a measure that economic agents read quite easily. With the rate going up, it’s a higher grip In the economy. If it goes down, there is a certain ‘release’. It is an easy-to-read signal”, defined the hierarch.
The process of lowering inflation and the exchange rate
On the other hand, when analyzing other reasons for the drop in rates, he highlighted that core inflation was at 5.2%, “level that has not been observed since 2009”. “Both inflation indicators accentuate the slowdown that has been taking place since October of last year. It is a process that is clearly being consolidated, but to which He still needs to finish consolidating himself ”, analyzed, while saying that these data “cannot be understood as complacent because there is still a long way to go.”
In addition, the president of the BCU highlighted the evolution of the inflation expectations, what were of 7.09% in June. “What we are waiting for is that there will continue to be new reductions on expectations, based on the data that reality is showing and the contractive instance that monetary policy continues to have”, he indicated.
Lastly, he clarified that the lowering of the rate is not intended “an exchange target”, by ruling out that it seeks to boost the value of the dollar. In this sense, he clarified that “Uruguay has a free float, which is the best buffer against shocks from outside”.
Source: Ambito
