He Central Bank of Uruguay (BCU) revised downwards the projections of inflation in the short/medium term and anticipated that the CPI will remain within the target range for the next 24 months, expecting it to be 5.6% year-on-year by March 2026, according to the Monetary Policy Report (IPoM), published this Friday.
At a time when annual inflation is at 3.7% year-on-year and has been on target for 11 months, the BCU expects a lower level in the first part of the Monetary Policy Horizon, with a CPI which will range between 3% and 6% over the next two years.
In it IPoM, The BCU authorities indicated that this level of inflation would occur in a scenario where monetary policy remains in a contractionary/neutral phase, at times where the Monetary Policy Rate is 8.5%.
Another important factor that the BCU took into account to analyze the evolution of inflation was the persistence of a negative gap in the Real Exchange Rate (TCR), “although progressively closing”, as well as, to a lesser extent, a gap GDP negative.
Inflation expectations of economic agents, downward
At the same time, they anticipate that the inflation expectations “react favorably.” It is worth noting that the average of the three projections of economic agents in this regard was reduced by 7 basis points in the first quarter, reaching 6.44%, the historical minimum of the series, at a time when it is being debated whether a new floor.
Specifically, the median of the survey of the analysts fell and remained at 6% in the first quarter, the ceiling of the target range, while that of the financial markets, implicit in the differential of the yield curve between nominal and indexed securities, it stood at 6.3%, 24 basis points below the last quarter of 2023.
Meanwhile, the business expectations reported by the INE remained above the objective, although at their historical minimum, 7%.
In this sense, the convergence of the projections in the long term, since economic agents reduced their 12-month inflation forecasts by 30 basis points, remaining at 5.9%; and they assess that it will remain right at the ceiling of the target range within 24 months.
Source: Ambito
