The agency Moody’s, which in May raised to “positive” the outlook for public debt in Uruguay, was on alert for the economic expansion of Latin America “at a speed of overheating” and anticipated that the situation will make it more difficult than the inflation reaches its target, so central banks are expected to keep high interest rates.
The report is observed with concern by the government and different sectors of the Uruguayan economy, since the CPI stood at 5.98% year-on-year and entered within target range after 25 months, which led to a reduction in 50 points in the Monetary Policy Rate (TPM) of the BCU, who decided to move it from 11.25% to 10.75%.
However, the Moody’s Analytics document indicated that the region already recovered the economic level lost during the pandemic, at different rates. Because of this, he assessed that it is now expanding at “superheating speed.”
“Towards the end of 2022, the seven largest economies (in Latin America) were already in expansion and with productive processes running above potential.” detailed the firm and argued that “they were operating in the territory of overheating and developing a positive gap of the product”.
The text, prepared by Alfredo Coutiño, director of Moody’s for Latin America, then pointed out that “the persistence of the positive gap it will make it more difficult for core inflation to converge quickly to its target”. For the agency, this situation “implies that central banks will have to maintain monetary conditions in restrictive ground to cool their economies.
How can this situation impact Uruguay?
Beyond Moody’s estimates, inflation in the country was within the target range after 25 months and market agents lowered their expectations with respect to the CPI. The central bank even decided to cut the interest rate by 50 basis points, in the midst of the contractive phase of monetary policy.
The report casts doubt on what may happen in the future, although the president of the BCU, Diego Labat, recently expressed his optimism and projected that “Inflation in 24 months will be at 5.3%.” To this must be added that Labat himself anticipated that a new cut in the TPM the next month.
From the BCU they valued positive issues of the economy, such as the fact that the GDP increased in the country 0.9% in seasonally adjusted terms and 1.2% year-on-year, while they highlighted that employment and activity rate they presented improvements compared to the previous quarter and are at values higher than those observed before the pandemic. Given all this, if Labat’s estimates are confirmed, Uruguay will go against hand of the region, according to the forecasts of the agency.
Source: Ambito
