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Uruguay Monetary Policy April 2019

Uruguay: Central Bank increases M1+ target in April

At its 2 April monetary policy meeting, the Central Bank of Uruguay set its target for the growth rate of the M1+ money supply for the second quarter of 2019 to 8.0%–10.0%, up from the previous quarter’s 6.0%–8.0% target. The Bank also confirmed that the M1+ growth for the first quarter stood at 10.4%, which was well above the officials’ expectations, while the Central Bank kept its inflation target for the next 24 months unchanged at 3.0%–7.0%.

The Bank’s decision came against the backdrop of still elevated inflationary pressures (March: 7.8%; February: 7.5%), with inflation persistently trending above the Bank’s 3.0%–7.0% target in recent months. The decision also reflected volatile dynamics in the foreign exchange market, where the peso slipped notably against the U.S. dollar in March after largely holding its ground in the first two months of the year. As a result, and against the backdrop of rather soft economic activity, the Bank opted to take a moderately contractionary monetary policy stance, in order to bring inflation closer to the target range over the policy horizon and smoothen the economic cycle.

In its communiqué, the Bank indicated an improvement in inflation expectations, with the headline rate now projected to moderate to 7.25% by the end of the policy horizon. Nevertheless, risks to the outlook remain significant, stemming from the volatile external environment and upcoming general elections scheduled for November.

The next monetary policy meeting is scheduled for July.

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