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Uruguay Monetary Policy November 2020

Uruguay: Central Bank keeps rate on hold in November

At its meeting on 5 November, the Monetary Policy Committee of the Central Bank of Uruguay kept the the overnight interest rate—its newly implemented monetary policy rate—on hold at 4.50%.

The decision to stand pat largely reflected heightened uncertainty with regard to the economic backdrop, despite still-elevated price pressures. Although the Bank confirmed domestic activity is recovering, it is doing so at a slower pace than what was observed in June and July. An increasing number of new virus cases in the country, leading to the closure of borders for the coming summer season, poses a downside risk, as does the challenging regional and international economic situation amid the continued presence of Covid-19 and reimposed containment measures. As such, keeping an expansionary stance avoids any further restriction on economic activity and ensures liquidity in the financial system. Turning to price pressures, while inflation dropped to 9.7% in October (September: 9.9%) on a softer rise in tradable sector costs, it still remained elevated nonetheless.

With regard to forward guidance, the Bank stated in its communiqué that the uncertain economic environment, both in a domestic and international context, calls for an accommodative stance which is to be maintained at least until the end of the 2021 summer season (end-Q1 2021).

The next monetary policy meeting is scheduled for 23 December.

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