He Monetary Policy Committee (Copom) of the Central Bank of Uruguay (BCU) is meeting to decide, once again, what will happen to the reference interest rates after having announced that these were “at a level close to ending the decline cycle.” What are the markets anticipating?
A new Copom meeting is taking place today, and the doubt about what it will decide regarding the Monetary Policy Rate (MPR), which is currently at 9.50%, re-emerges. In this regard, the analysis of the markets allows us to infer the direction that will be taken regarding the “price of money.”
For example, the consultant Exante warned that “the yields of bills in pesos “They do not seem to arbitrate with new drops in the MPR in any time horizon.” Specifically, the interest rates in nominal pesos for 30 days were at 9.71%, while those for 90 days are at 9.80%, those for 180 days are in the order of 9.64%, 360-day rates reach 9.62% and 720-day bills are at 9.87%. All values above the current TPM.
This scenario is the one projected in the medium term, including in the BCU’s warnings about the near end of the downward cycle that took place this year, and reduced rates by 200 basis points in four downward revisions.
Inflation is the key data to take into account regarding what may happen tomorrow: according to Copom, an eventual decrease in rates will have to do with “expectations finishing aligning and credibility continuing to be strengthened by remaining within the target range of inflation.” It is worth remembering that in October, the Consumer Price Index (CPI) It accelerated and reached 4.3%, which, in any case, is still within the target range set by the government.
The expectation for the Fed’s decision
What the United States Federal Reserve (Fed) It is also relevant to local decisions. For this reason, analysts’ eyes are also on the North American markets.
In that sense, the Treasury bond fell yesterday after the October inflation data was released in USA, which showed a stable outlook, better than expected. This allows us to consider the possibility that the Fed has finally ended the rate hike – a possible further increase was still expected for the remainder of the year; At the same time, possible cuts are projected in the first half of 2024.
This scenario is observed, mainly in the 2-year bond yieldswhich reflect expectations about interest rates: these reached two week minimums of 4.815%, and then operated with a drop of 22 basis points to 4.819%. The interest rate in the North American country is in the range of 5.25% – 5.50%.
“This morning’s report reinforces our conviction that the Federal Reserve has finished tightening its monetary policy and that Treasury yields have bottomed in the cycle,” he wrote Ryan Swift, US bond strategist BCA Research in Montrealin a research note.
The situation in the United States may or may not influence Copom’s decision: in recent months, the Fed has shown a much more contractionary course than the Uruguayan one, and that has not prevented progress at the local level in relation to its own monetary strategy. . The truth is that, likewise, the prospect of maintaining the rate in the North American country may contribute to the BCU decide the same thing tomorrow, and so not just aim for the inflation, but also to exchange rate maintenancein relation to the country’s competitiveness.