He Central Bank of Uruguay (BCU) defined a cut of 75 basic points in the reference interest rates with respect to last month, thus taking it from 10.75% to 10%, as resolved after the meeting of the Monetary Policy Committee (Copom), which in any case indicated that it continues with the contractive phase of monetary policy.
To define the new rebate, the Copom considered key the decrease in the inflation, which fell to 4.79% in the year ending in July and is within the target range, at its lowest level in the last 17 years. To that is added the Underlying inflation, stood at 3.99% and decreased by a magnitude similar to that of Consumer Price Index (CPI).
From the BCU justified the reduction up to 10% of the Monetary Policy Rate (TPM), the second in a row, and clarified that it occurred “within the contractive phase of the monetary politics”. Furthermore, in the report of the Copom it was valued that the average of the indicators of expectations of inflation at 24 months it remained stable in July (7.10%).
In this regard, the board of directors highlighted the recent reduction in the inflation expected by analysts in the survey carried out by the BCU, in a slow but continuous trend. They also took as positive data that in the survey of business expectations there was a decrease in the average, beyond the fact that the median has remained constant.
With these variables, the Copom It is expected that in the coming months the reduction of the inflation year-on-year and lower expectations. “The projection of inflation for the monetary policy horizon (24 months) it remains within the target range”, the analysts valued.
On the other hand, they indicated that the yield curve of the Letters of Monetary Regulation (LRM) adjusted downward, from averaging 11% in June to 10.6% in July. And they highlighted that the curve remained inverted, with rates between 10.8% and 10.0% in the 30-day and two-year nodes, respectively.
The influence of regional and international aspects
After the meeting, the Copom reported that it assessed aspects of the international, regional and local situation. Among them, he highlighted the global economic environment, where “activity slowed down in the second quarter due to lower growth in China, offset by the positive data in the main economies of the world”. He further stressed that the inflation “it continues its downward trend after the price of commodities stabilized at pre-pandemic levels”.
At the local level, the BCU anticipated that “economic activity is expected to overcome the effect of the drought, which will be reflected in the measurement of the second quarter”, while he predicted “an upturn in the third from the reversal of that shock and the commissioning of the second plant of UPM”.
At the same time, they appreciated that the Work market “showed positive signs”, because both the Activity rate like the employment presented increases in seasonally adjusted terms compared to the previous quarter.
Finally, from the BCU clarified that “future movements of the interest rate will continue to be conditioned by the evolution of the inflation and, mainly, of their expectations in the monetary policy horizon”.
Source: Ambito
