There are international factors and other internal economic arguments behind the weakening of the US currency, they affirm from the CED.
He drop in inflation, which was first located in 25 months inside of the target range of the government, contributed to the Central Bank of Uruguay (BCU) define a cut of 50 basic points in the interest rate, although the specialists anticipated that in any case this by itself would not be enough to correct the dollar depreciation, since they influence other factors such as investment, exports, credit rating and fiscal consolidation of the country.
The researcher at the Center for Development Studies (CED), Deborah Eilender, considered that the fact that the CPI stands at 5.98% year-on-year “gives room” for a further reduction in the Monetary Policy Rate (MPR) of the BCU. However, when asked if it will influence the correction of the exchange rate delay, I consider that “sometimes it is oversized” its impact on this item.
According to Eilender, there are “internal arguments and the international context” so that the dollar cannot be rehabilitated in 2023. “The exchange rate could rise somewhat, but in Uruguay it has been falling as in all of Latin America and in many emerging economies. The global trend is being followed and it is difficult for it to go against the tide of what is happening, ”she analyzed.
The economist admitted that the TPM “has an effect and should not be removed,” but questioned that “sometimes too much emphasis is placed on it.” Therefore, she listed other factors, such as “direct investment, which is at all-time highs”, as well as exports.
The factors behind the appreciation of the peso
In this regard, he appreciated that “exports of services are flying, with non-traditional services with an income of 3 billion dollars and at record levels, with a good tourism season, which recovered very well post-pandemic”.
Another key aspect was the fiscal consolidation. “Starting with the fiscal rule, with the creation of a fiscal council, the order of the accounts made us be well regarded and even improved our credit rating”, Eilender noted. And he pointed out: “Before, Uruguay was on the verge of investment grade and could lose it, but today we are one or two steps above, with the lower country risk in Latin America and the history of the country.
Regarding the CPI, he assured that “the exchange rate drop it is one of the factors that helped inflation to fall” and considered that “the fact that it has reached the target range helps in many cases to align expectations”.
Consequently, “it gives more room for the BCU to continue lowering the interest rate, but maintaining the contractionary monetary policy. Although he indicated that there will be a gradual drop, as the BCU anticipated, “it will continue to be above the economy’s neutral rate, which is 8 or 9 points, contributing to lower inflation. explained the CED economist.
Source: Ambito
