The Central Bank of Uruguay (BCU) increased this Tuesday lat the monetary policy interest rate (TPM) again at 50 basis points (0.5%), up to 11.25%, seeking to anchor the inflation expectations of economic agents. This after a new meeting of the Monetary Policy Committee (Copom).
“It is considered that these increases would be reaching the appropriate rate levels for the convergence of inflation and its expectations to the target range in the policy horizon. The committee will continue to monitor the local and international situation, as well as the response to expectations to evaluate future monetary policy decisions,” says the official statement.
In October the BCU had increased the rate by 50 basis points to 10.75%. Since that meeting, inflation expected by the median of analysts in the 24-month horizon (relevant for monetary policy) has remained at 7%, according to the BCU survey, that is, 1 percentage point above the ceiling of the target range. (between 3% and 6%) and far from the center of the range (4.5%).
For their part, the expectations of Uruguayan businessmen are the most unanchored and project inflation of 8.5% for the next 24 months.
Inflation eased in October and stood at 9.05% accumulated in the last 12 months, from a previous 9.95% in September.
For the decision, the Copom valued aspects of the international and local situation. As he explained, the world scenario “remains complex” due to the persistence of inflation and the uncertainty due to the extension of the war in eastern Europe, while in China, although covid restrictions have begun to be lifted, some problems continue to persist, such as in the real estate sector.
“In Uruguay, a good level of annual economic growth continues to be forecast, beyond the fact that some leading indicators show slower growth in activity in the second half of the year”added the official text.
In the interbank market, banks lend each other money every business day at a daily rate (call). This rate —which the BCU sets as a policy reference— then ends up affecting the cost of money in the rest of the links of the domestic economy. The higher the rate, the more incentive to save on consumption. Some economic analysts are critical of this BCU policy because of its side effects on the economy and also because it tends to depreciate the dollar against the Uruguayan peso.
The last meeting of the Copom this year is scheduled for December 30.
