The Central Bank of Uruguay projects that the monetary policy in the contraction phase will guide the CPI to 4.5%.
He Central Bank of Uruguay (BCU) provides that the year-on-year inflationguided by a monetary policy in contraction phasewill converge to the center of target range (4.5%) by the end of the Monetary Policy Horizon (HPM) in June 2026.
In its Monetary Policy Report (IPO), corresponding to the second quarter of the year, the Central Bank assures that the inflation data present a projection consistent with the convergence of interannual inflation towards the center of the target range established between 3% and 6% for the end of the HPM.
Within the new projection reference scenario, it is estimated that the economy would grow by around 2.5% on average during the current year, while it would grow by around 3.5% in the rest of the HPM. In 2024, the main growth driver would be the net exportsMeanwhile he private spending it would be in 2025.
In addition to the contractionary monetary policy guidance throughout the HPM, the action of the different transmission mechanisms and the policy coordination framework guided by administered price increases compatible with the center of the range would help inflation converge.
This dynamic would be framed in a context where the inflationary expectations of economic agents continue to react favorably to the contractionary phase of monetary policy. Other macroeconomic factors contribute to this evolution, such as the persistence of a Real Exchange Rate gap (TCR) negative closing at a relatively slow pace, as well as the presence of a Product gap in negative territory throughout the HPM.
According to the BCU report, the main risks to the level of activity are related to factors exogenous to the local economy, since they will depend on macroeconomic imbalances in the region.
Factors to consider regarding inflation behavior
In turn, the main risk for year-on-year inflation (which in July was 5.45%) is associated with a lack of convergence of expectations towards 4.5%, determining greater inflationary persistence through price adjustments and wage dynamics.
However, the BCU itself points out that this high-impact risk has a low probability. It also stresses that we must not lose sight of the direct risks arising from global geopolitical tensions and their impact on the price of raw materials and costs, as well as the indirect risks due to investors’ risk aversion, which could lead to an appreciation of the dollar globally.
Source: Ambito
