The cut-off rate in the 30-day LRM tender was 8.76%, following the downward trend. If it is defined tomorrow, it would be the first reduction of the year.
He market continues to advance on the possibility of a new cut in interest rates of reference by the Central Bank of Uruguay (BCU) after the meeting of Monetary Policy Committee (Copom) tomorrow: estimates already indicate a drop of 0.25%.
After the last Copom meeting, the BCU decided to keep the Monetary Policy Rate (MPR) without variations, the idea that the government was aiming for a consolidation of inflation at a lower level within the target range and that, with this, began a pause in the cycle of declines that characterized the country during 2023, was mostly confirmed. However, after the president’s announcement Luis Lacalle Pou to businessmen that this week there would be a “sign” in relation to the exchange delay, speculation began about the possibility of a new cut.
The truth is that the news was unexpected in the market that, according to Business Expectations Survey (EEE) of the BCU corresponding to March, they did not expect a change in the MPR during this month, and the first drop was only projected for August. But, as the days went by, some signals began to be seen from operators who are aligning themselves with a reduction in rates starting tomorrow.
An interest rate of 8.75%
One of the indicators that anticipate the possible cut of the MPR is the cut rate of the Monetary Regulation Bills (LRM) of the BCU. In that sense, on Friday it was already below the current 9% of the reference interest rates, when the securities tendered went from 9.02% in the previous auction to 8.95%.
The tender, however, was for one year, so it was expected that the trend would be ratified in yesterday’s placements. Something that actually happened: the cut-off rate for LRMs maturing in 30 days was 8.78%.
In the same line, the Yield Curve in Pesos (ITLUP) of Bevsa recorded a one-month interest rate of 8.76%.
This indicates that the market is already projecting a cut of 25 basis points in the MPR after the Copom meeting, in what would be the first drop of the year, after reducing rates by a total of 250 bp in 2023, from 11 .5% to the current 9%.
The measure could also mean the end of the restrictive cycle in monetary policy that, despite the recurrent reductions last year, remains in force. According to the economist Jose Licandro in INE, and the rate differential in pesos and Indexed Units— were at 6.5%, then the real MPR would be 2.2%.
Source: Ambito
