Uruguay Monetary Policy December 2018


Uruguay: Central Bank lowers M1+ target again in December

December 27, 2018

At its 27 December monetary policy meeting, the Central Bank of Uruguay set its target for the growth rate of the M1+ money supply for the first quarter of 2019 to 6.0%–8.0%, down from the previous quarter’s 7.0%–9.0% target. The Bank also confirmed that the M1+ growth for the last quarter of 2018 stood at 5.5%, well below officials’ expectations. Lastly, the Central Bank kept its inflation target for the next 24 months unchanged at 3.0%–7.0%.

The Bank’s decision was largely driven by elevated inflationary pressures, with inflation trending approximately 1.0 percentage point above the Bank’s 3.0%–7.0% target in recent months (December: 8.0%; November: 8.1%). The decision also came against the backdrop of moderate economic activity growth. The sustained strengthening of the U.S. dollar continued to weigh on the value of the peso in the final quarter of 2018, keeping inflationary pressures elevated and driving up the cost of imports. Meanwhile, the ongoing global trade conflict and challenging economic conditions in Argentina and Brazil, Uruguay’s top trading partners, continued to dampen the external sector and set the path for sluggish growth at the end of 2018.

In its communiqué, the Bank highlighted a slight improvement in its inflation outlook at the end of 2018. Lower depreciation of the peso and the passing of short-lived shocks to food price have resulted in lower inflation expectations, signaling a possible slowdown in monetary policy tightening over the policy horizon. Nevertheless, international investors remain relatively risk-averse to the peso, which continues to be under significant pressure from the strong greenback. This suggests some tightening is likely required in order to bring inflation expectations down to the target range in the medium-term.

The next monetary policy meeting is scheduled for 1 April.

Elevated inflation suggests that further monetary tightening could be on the horizon. That said, FocusEconomics analysts currently see money supply growing 8.0% in 2019 and 7.2% in 2020.

Author:, Research Team Manager

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