He Central Bank of Uruguay (BCU) cut 50 basis points interest rate, which remained at 8.5%, after a surprising decision by the Monetary Policy Committee (Copom), when the market went from expecting the MPR to be maintained to anticipating a reduction of 25 basis points.
In this way, the BCU fulfilled the president’s advance payment Luis Lacalle Pou to businessmen during a meeting at the Executive Tower, about the fact that the government was going to send a strong gesture this week to combat the exchange delay, amid criticism from the sector agroexporter.
By providing the arguments for the largest movement in the rate since October, the Copom pondered the sustained decline in inflation, which is at 3.80% annually and has remained within the target range for 10 months now, being at its lowest level since August 2005.
That adds to the IPC Core, which slowed down last month and is at 3.83%, as well as the gradual decline that economic agents have been expressing in their expectations.
It is worth remembering that the forecasts of the BCU specialists are in historical lows, with an average that fell from 6.45% to 6.3% in the last three months, approaching the ceiling of the target range. Meanwhile, analysts remain at 6% and the monetary authority’s projections remain even lower.
The BCU analysis of the international scenario
When referring to global factors, Copom indicated that activity is slowing down less than expected, with “relative dynamism” in USA and anticipating that the Euro zone “would be reactivated towards the end of the year, while in China “an economic growth and a temporary inflationary rebound” are observed.
On the other hand, the BCU authorities indicated that the global inflation continues its descent slowly and they remembered that the Federal Reserve (Fed) It maintained the interest rate and the agency is expected to make fewer cuts than anticipated.
Finally, in the regional scenario, the report highlighted that in Brazil the growth projection was corrected upwards, while Argentina shows an improvement in the financial context and a deterioration in the indicators of the real economy.
The view of economists on the rate cut
The Economist Aldo Lema echoed the sharp reduction and maintained that it “contrasted with the consensus view,” which was 9.% according to a Bloomberg survey. Thus, “it was aligned with what was suggested by the monetary policy rule (Taylor),” he highlighted through his X account (formerly Twitter).
In advance of the meeting, the director of the UCU Economic Observatory, Javier De Haedo, had stated that a 0.5% cut “would be good”, when sharing data on the real exchange rate and talking about “a exchange delay forceful and generalized”.
Source: Ambito
