The Monetary Policy Committee (Copom) of Central Bank (BCU) reported that it raised the interest rate at 75 basis points, at 6.5%, because he considered it convenient to “emphasize efforts to achieve inflationary objectives”, in a scenario “marked by better prospects for economic growth.” This is the fourth consecutive rate hike and the steepest since the monetary policy normalization process began last August.
As published by the BCU this Wednesday after the Copom meeting, the change was framed “on the path that implies the convergence of expectations to the objective.” In addition, the increase “anticipates increases of similar magnitude in the next two sessions of the Committee, which will imply reaching a neutral interest rate at the beginning of the second quarter of 2022, “the statement said. If two increases of that magnitude materialize, the monetary policy rate would reach 8%.
Today Wednesday it was known the annual inflation data from 2021 published by the INE, which showed a general price increase of 7.96%. The number was almost a percentage point above the ceiling of the 7% target range For the year and also of what is projected by the Ministry of Economy and Finance in Accountability (6.9%).
For this year, the MEF has an inflation projection of 5.8% and the median of the BCU’s Economic Expectations Survey was 6.9%, while entrepreneurs expect 8%, according to the INE’s monthly survey. The government is planning a change in the inflationary range from September, when the ceiling will be lowered to 6%. The administration of Luis Lacalle Pou has as target to bring inflation to 3.7% by the end of 2024.
With prices far from the path expected by the authorities, the BCU justified the rate hike by anticipating that the institution “will continue with the gradual increase in the rate until inflation expectations converge to the target. ”
