He Central Bank of Uruguay (BCU) is getting ready to announce what, surely, is a new drop in the benchmark interest rates after the meeting of Monetary Policy Committee (Copom), and with several positive signs that account for a cut that could be larger than initially projected; among them, the reduction below 10% of the cut-off rate in Uruguayan titles.
At the beginning of the month it was barely a possibility, a projection of different economic analysts who saw in the tenders for Letters of Monetary Regulation (LRM) a progressive drop in the cut rate, and they expected that yesterday’s would be the last to have a double-digit figure, with barely 10%. Finally, and after the placement of more than 100% of the tendered amount, the rate was located at 9.65%, 44 basis points below the rate with which the LRM of July 27 was tendered.
For the experts, this is a preview of what will happen next Tuesday, after the Copom meeting and the inevitable cut in the Monetary Policy Rate (MPR) with positive inflation rates and within the government’s target range —4.79% year-on-year, which is perfectly in line with the 3% and 6% projected by the economic authorities.
According to the economist aldo motto, The drop in the cut rate shows that “market prices already include additional cuts in subsequent meetings of the Central Bank of Uruguay” above the drop of 75 basis points for the TPM forecast for August 15. With this reduction, the interest rate could remain at 10% —it is currently at 10.75%, after the previous cut of 50 basis points.
The decision of the BCU, in line with the central banks of the region
The expectations in the local scenario are supported by what is happening throughout the region, with inflationary levels beginning to be controlled and the decision of the central banks to gradually abandon restrictive policy and move forward with interest rate cuts — or, at least, with maintaining them without upward variations.
In Chili, For example, there was a 100 basis point cut in rates, which went from 11.25% to 10.25% —and an additional cut of 375 basis points is expected for the remainder of the year, up to 7, 5%.
Something similar happened in Brazil, where finally —and in line with forecasts— the drop was 50 basis points, so that the rates would remain at 13.25%; while the positive inflation data known today indicates that there could be more cuts soon.
In Mexico, Meanwhile, the Central Bank kept rates at 11.25% for the third time in a row, and warned that the greatest probability is that they will remain at these values for a while longer. Also Peru it kept the reference interest rate unchanged, at 7.75%, since, although inflation was low, it is still above the target.
Source: Ambito
