The United States Federal Reserve (Fed) resolved to maintain once again the reference interest rates at its highest historical range due to the “disappointing readings” of inflation data; And increasingly, operators are pushing their bets for a first cut towards the end of the year, although the possibility that the first reduction will not be seen until next year is also beginning to be considered. In that sense, what effect could it have for Uruguay maintaining this high range of rates in the US?
On Wednesday, the Fed confirmed that it will maintain the level of rates at 5.25%-5.50% while the economic results are still not aligned with the expectations of the US central bank to begin to relax the contractionary monetary policy. This generates, in addition to repercussions at the American level, effects on most of the world’s economies. And, of course, also in Uruguay.
Local exchange rate
A very important topic on which the eyes of politicians, businessmen, producers, industrialists and all types of analysts are is the exchange delay in the country. So the news of the Fed Maintaining high rates can be positive in this sense.
This is because although the Monetary Policy Rate (MPR) affects the local exchange rate at a certain level, there are other variables that have greater effects. And the monetary policy of the Fed is one of them, as pointed out by the president of the Montevideo Stock Exchange, Ángel Urraburuto Ambit.
The reason is that the returns in dollars remain high, which is why the demand for the greenback increases—or, at least, is maintained—which drives up its value globally, also having repercussions on the local exchange market, even more than a rate decision itself that slightly discourage placements in pesos.
Global bonds and impact on dollar assets
The maintenance of high rates also has its correlation in an increase in United States Treasury bonds (treasuries). And this can be seen in the fact that, fifteen days ago, these bonds reached their highest levels in five months at the first signs that the decision of the Fed It would not go in the direction of a reduction, precisely.
Then, the performance of reference bonuses 10-year notes rose 5.2 basis points, to 4.637%, and 30-year notes gained 3.6 basis points, to 4.736%. In turn, the return on two-year papers, which usually moves at the pace of rate expectations, advanced 5.6 basis points, to 4.988%.
For Uruguay, This means, however, an increase in the cost of asset price in dollars. Among them, nothing more and nothing less than debt in US currency. This was noticed by the director of the International Monetary Fund (IMF), Kristalina Georgievain Brussels, when he noted that an environment characterized by high rates in the United States is traditionally bad news for emerging markets, since it makes their debts, often issued in dollars, more expensive.
Less investments in emerging markets
The investments They may also be impacted by a stronger dollar, as a result of high interest rates in the United States. Especially in times of international uncertainty due to geopolitical conflicts, The greenback reemerges as an asset haven of value for operators around the world who, in addition, see interesting returns on their placements.
On the other hand, emerging markets become less attractive, which generates not only a lower arrival of investments to these countries, but can also trigger capital outflows, as the head of the IMF, Georgieva, warned. Therefore, financial conditions may worsen considerably if the US rate cut by the Fed it takes much longer.
Source: Ambito
