The president of Central Bank of Uruguay (BCU), Diego Labat, warned that the Monetary Policy Rate (TPM) will remain “relatively high for a while” to contain inflation in the target range, while the expectations converge towards the objective.
Labat highlighted the management of the inflation by the government and clarified that, in addition to being within the goal for 10 months, it is expected to remain within the range of 3% to 6% during the next 24 months.
During the Conversation with Presidents of Central Banks, organized by the Inter-American Development Bank (IDB), The head of the monetary authority highlighted the good path of Uruguay, although he warned that greater credibility still needs to be built.
“We lowered inflation from 8% to 3.8%, the lowest figure since 2005, and this managed to begin to act on expectations, which are our Achilles heel”, admitted Labat, who highlighted the downward trend of the indicator, although he clarified: “They believe us, but there is still a long way to go.”
Regarding this situation, which he defined as “credibility deficit”, He warned that “it is a long process and that it will take time for expectations to converge” with the target range. For this reason, he called not to anticipate a sudden change in the interest rate.
“If one looked at the policy rules, one might think that a rate of 8.5% is relatively high, but surely Uruguay “he is faced with maintaining it for longer than other colleagues who came with a consolidated regime and another situation of expectations,” the president of the BCU said, giving a sign of what may happen in the future with the TPM.
What did the BCU say in the last Copom minute?
Despite Labat’s statements, the Monetary Policy Committee (Copom) admitted in its last minute that “expectations will continue their downward evolution” and indicated that the TPM “it will continue its trajectory aimed at maintaining inflation in the center of the range and the convergence of expectations in the monetary policy horizon”, without ruling out a reduction.
For the BCU, the letter yield curve It moves in the same way as rates, just as it does with banking rates. Thus, today they are at a “neutral level”, but with the imminent possibility of reaching a level that ends the contractive cycle of monetary policy.
So, in the coming months there may be two scenarios: that the rate remains at levels similar to the current one or that it advances in a decrease towards 8%. The definitions will begin to be retraced on May 16, when the Copom meet again.
Source: Ambito
