The inflation It has been within the target range for 11 consecutive months and this decline has been consolidated in recent years due to various factors, among which is the monetary policy applied by the Central Bank of Uruguay (BCU).
The BCU, which recently revised downwards the CPI and predicted that it will remain at the target of between 3% and 6% for the next two years, measured the effect of the changes in the Monetary Policy Rate (TPM) between September 2021 and the same month of 2023, concluding that its impact was to lower annual inflation by 3.6%.
To estimate that figure, the monetary authority proposed three counterfactual exercises in the last Monetary Policy Report (IPoM): one with exogenous variables and observed TPM; another with observed exogenous and constant TPM; and a third with projected variables and observed rate. In all cases, the endogenous variables were free.
The BCU detailed that, if rates had been maintained at 4.7%, as in September 2021, the inflation in the same month of 2023 it would have been 8.3%, against a CPI of 4.7% with the observed MPR.
In this way, the approximate contribution of the monetary politics to disinflation was 3.6%, while it contributed a 4.6% decrease to Underlying inflation (6% against 10.6%). “This exercise allows us to conclude that contractionary monetary policy would have played a central role in the process of falling inflation,” the Report said.
The influence of the international scenario and the cost of monetary policy
On the other hand, the BCU analyzed the external setting and compared it between the impact of the macro-financial environment faced with that which was projected. What happened in reality generated 2.2% more inflation, which would have been 2.5% with the expected exogenous variables.
Thus, it was highlighted that what happened internationally did not contribute to the decline in the CPI and even the “less benevolent” scenario added inflation.
Finally, the IPoM compared the BCU deficit in the period between September 2021 and 2023, simulating the cost and efficiency of monetary policy. After starting at 0.9% at the beginning, it was reduced to 0.7% in 2022 and 0.6% in 2023, 1 basis point above what was expected on both occasions.
However, these values were below the average recorded between 2006 and 2023, which is 0.8%, which proves that the deficit was at the level of the historical average.
Source: Ambito
