Fruits and vegetables rose between 40% and 50% in the last 12 months. With this, its real price is at maximum values in the last 15 years. These products became very expensive in the first months of this year as a result of the drought that has hit the country.
However, the May data showed that the decrease in the prices of these foods was the main explanation for the Inflation will drop more than expected, to 7.1% year-on-year.
The CPA Ferrere economist, Alfonso Capurroexplained this week in a talk organized by Banco Itaú, that trend inflation –excluding fresh food and energy– is “falling very fast”, and with it in September would be within the target range (between 3% and 6%).
While, global inflation “shows signs of cooling off”which lead one to think that it should also “slacken off” in the coming months to be “at the limit” of the official reference.
According to the expert, this will be an “important moment” for the Central Bank (BCU), because it will be able to say that its “tough” monetary policy had results, and it will be able to put together a “speech” more aligned with the interest rate cut.
The rate policy
At their April meeting, the Monetary Policy Committee (Copom) cut the interest rate by 25 basis points to 11.25%. Then in mid-May he made no changes. For Capurro, the BCU will lower the rate again at its next meeting in July. For this year, it expects a cut of 100 basis points that would place it at 10.5%.
The economist explained that the BCU “could take the risk of going soft” and “not rushing” with the downgrade, “to try to rebuild credibility”, but it is known that this “also has a side on the dollar”.
What will the BCU do?
“The downward pressure on the dollar is being important for different reasons, and it is beginning to be a problem of concern. The statements made by the President of the Republic a few days ago are not innocuous. This means that there is political concern, and there is a request from the Presidency that the authorities take some action on the issue”, the economist stated.
For Capurro, if the BCU has to choose between intervening in the exchange market or further cutting the interest rate, “It is more puritanical to accelerate the cut in interest rates”. The economist did not rule out an intervention by the monetary authority, but considered that “it would throw overboard part of the institutional advances that he has tried to make” in terms of monetary policy management.
“BCU has tried to go towards a less intervened and purer market. I think he will try to maintain that spirit as long as he can, and until he can withstand the pressure that will surely come from the Executive Power,” he claimed.
Baseless
The price of the dollar continued to fall this week and approached $38 in the interbank, the lowest nominal value since the beginning of 2020.
The managing partner of Gastón Bengochea Corredor de Bolsa, Diego Rodríguez, pointed out this week that if inflation moderates, the fiscal deficit is reduced, GDP grows again and the risk rating agencies raise the debt note, which results in lower risk financial, “there are no macro fundamentals to expect the dollar to rise in Uruguay”.
On the other hand, the medium specialized in personal finance Personal Sherpa, expressed that in recent days the appreciation of emerging currencies has been a global phenomenon.
More dollars?
“Renewed entry of dollars into the economy and, therefore, a new pressure for the peso to continue appreciating?”, he asked himself.
In July 2019, when UPM’s investment of US$2.7 billion was confirmed, this had an immediate impact on the exchange rate (around $1), and on the price of bonds in nominal pesos, he recalled.
