He Central Bank of Uruguay (BCU) maintained the interest rates by 8.5%, in line with the expectations of the financial market, according to the latest meeting of the Monetary Policy Committee (Copom).
In this way, the Copom maintained the Monetary Policy Rate (TPM) for the second consecutive time, after the decision in May, waiting for the consolidation of the inflation within the target range.
The BCU authorities acted in line with what the financial market anticipated, which expected rates to remain the same and projected only a reduction until the end of the year. With this scenario, the TPM remains just below the cut-off rates of the Monetary Regulation Letters (LRM), close to 8.6%.
The rate decision aims to contain inflation
In justifying its decision, the Copom highlighted the permanence of the inflation around the center of the target range and the convergence gradual from its expectations, at a time when the interannual CPI is at 4.96% and has been at the target for 13 months
At the same time, the authorities assessed that the quarterly average of the inflation expectations In two years, the rate is 6.1%, below the previous period, largely due to the reduction in business expectations measured by the INE, which fell 80 basis points, from 7% to 6.2%.
Meanwhile, the BCU indicated that the average inflation projection remains within the target range for the next 24 months and is located in the center of it at the end of the year. Monetary Policy Horizon (HPM).
For all these reasons, Copom ratified the rate at 8.5%, with the aim of guaranteeing efforts so that inflation and its expectations converge to the center of the target range for the next 24 months.
The BCU’s analysis of the international panorama
Referring to the international scenario, the BCU directors maintained that “in the main economies the slowdown in economic activity continues” and stated that inflation in USA “shows a slow improvement in its path of convergence to the goal,” which could lead to a reduction in rates by the Federal Reserve (Fed).
Regarding what is happening in the region, they stated that Brazil “good prospects for the level of activity and an increase in inflation expectations” are observed, while in Argentina “There is a slowdown in inflation within a framework of falling levels of activity.”
Specifically, at the local level, they stated that the Uruguayan economy registered a seasonally adjusted increase of 0.9% in the first quarter, placing it 0.6% above the level of a year ago, while it would continue to grow in the following two quarters according to short-term projections such as IMAE.
Source: Ambito
