He Central Bank of Uruguay (BCU) defined after the meeting of the Monetary Policy Committee (Copom) cut 50 basis points interest rates, so they stood at 9.50%, within the framework of the government’s contractionary monetary policy.
The authorities thus echoed the decline inflation, which is at the lowest level in the last 18 years, although in any case the reduction was less than expected by the market, which predicted a reduction in the Monetary Policy Rate (TPM) of 75 basis points.
In the minutes of Copom, the authorities of the BCU, headed by the president Diego Labat, indicated that the TPM of 9.50% has “a level consistent with the inflation objective in the current economic conditions” and highlighted that in this way “the contractionary phase of monetary policy” is maintained.
At the same time, they anticipated that the MPR “would be at a level close to the end of the downward cycle,” considering the economic situation and waiting for “expectations to finish aligning and credibility to continue to be strengthened by remaining within the range.” goal of the inflation”.
Copom’s analysis of the level of inflation
When analyzing the latest data from inflation, of 3.87% annually, the members of the Copom They assessed that it is more than 600 basis points below the 9.95% of the previous year. Furthermore, they highlighted that the inflation core fell again to stand at 3.30%, near the floor of the target range.
In turn, he indicated that the average expectations of the CPI As of September, it was reduced compared to the previous quarter, going from 7.09% to the current 6.87%, which they described as “the result of a reduction in all indicators, with the exception of businessmen,” since analysts They fell from 6.67% to 6.20%.
He BCU also echoed the expectations implicit in the rate differential between the curves of Monetary Regulation Bills (LRM) in nominal pesos and Indexed Units (UI), which went from 7.56 to 6.19%, which is why it positively valued “the gradual convergence of expectations towards the target range” and indicated that the CPI will remain within the target range for the next 24 months.
Economic activity and the international scene
By echoing the fall in economic activity, with a GDP which fell 2.5% year-on-year during the second quarter due to the effects of the drought. However, experts from Copom They considered that short-term projections “suggest that the economy would recover in the second half of the year.”
The reversal of the consequences of the climate phenomenon and the start-up of the second pulp mill in UPM They will help in that sense and the expectation is of seasonally adjusted improvements of 1.5% and 0.5% for the third and fourth quarters of the year, they detailed.
Regarding the international base scenario, the authorities of the BCU posed “challenges fundamentally for 2024, with greater growth expected in Brazil and USA”. However, they considered that “it would be more than compensated by a lower expansion in China and Europe and due to a more pronounced fall in Argentina”.
Thus, they indicated that “the terms of trade would show an improvement in 2023 similar to that expected last quarter, while in 2024 a deterioration that would be somewhat less than expected would be observed.”
Source: Ambito
