In an inflationary context that seems somewhat controlled, the Central Bank’s Monetary Policy Committee (Copom) decided to raise the monetary policy rate by 25 basis points to 11.50%. This shows that it is notoriously high over annual inflation, which stood at 8.46% in November, which is below the highest percentage that had been observed in the annualized rate to September, which was 9.95%. The BCU had started raising rates in August 2021.
The BCU itself acknowledged in a statement that the measure takes place in “a context of falling inflation in the expected direction”, a context reaffirmed by the 24-month inflation expectations that, according to the survey carried out by the monetary authority, are expected between to 7.0% to 6.8%.
Continuing to raise the rate could have two effects in the short term. Greater pressure on the price of the dollar, which will continue with a downward trend, since private operators expect to use the differential between the rate and expected inflation to position themselves in pesos and, on the other hand, a rise in the interest rate that Banks charge in national currency.
The BCU pointed out that “For the Copom’s decision, aspects of the international and local situation were valued.”
They clarify that “the world scenario shows less pressure from commodity prices on inflation, the reestablishment of global supply chains, an accumulation of natural gas from other regions, together with favorable activity indicators for the Euro Zone and expectations recovery of China’s dynamism”.
The Copom itself indicates that its policy marks a deepening of the contractive bias of the monetary policy that began in August 2021. “Although in the current context no new increases in the interest rate are envisioned, the committee will continue to monitor the local and international situation with the aim of ensuring that both inflation and its expectations converge to the target range towards the end of the monetary policy horizon,” the statement said.
In Uruguay, the forecast for economic growth of the Gross Domestic Product (GDP) for the end of 2022 is maintained. On the other hand, the BCU projections for 2023 and 2024 were also evaluated, which incorporate the start-up of the new cellulose.
Finally, the Copom announced the scheduled dates for the Committee meetings in 2023: Wednesday February 15, Monday April 17, Tuesday May 16, Thursday July 6, Tuesday August 15, Thursday October 5, Thursday November 16 and Friday December 29.
