Uruguay Monetary Policy December 2016


Uruguay: Central Bank allows for slightly faster growth in M1+ to avoid constraining recovery in activity

January 9, 2017

At its 29 December Monetary Policy Committee meeting, the Central Bank of Uruguay decided to increase the target growth rate of money supply—its main monetary policy instrument—in Q1 2017. The target growth rate of the reference monetary aggregate M1+ was raised from 1.0–3.0% in Q4 2016 to 3.0%–5.0% in the first quarter of 2017. By adopting a less contractionary monetary policy stance, the Bank aims to maintain the focus on reducing inflation, but at the same time to satisfy the increasing money demand. Inflation is currently decreasing but still exceeds the Bank’s inflation target range of 3.0%-7.0%.

The monetary authorities noted that both inflation and inflation expectations continue on a downward trend, although they both exceed the Bank’s inflation target. Regarding the growth rate of money, the Bank noted that there was robust growth in the monetary base in the fourth quarter. This was primarily due to a strengthening in domestic activity, which seems to be recovering from recent lows. The next Monetary Policy Committee meeting will take place in early April.

Panelists participating in the LatinFocus Consensus Forecast expect M1+ to have grown 5.3% in 2016. For 2017, the panel sees the monetary aggregate expanding 6.0%.

Author: Massimo Bassetti, Economist

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