Uruguay Monetary Policy December 2019


Uruguay: Central Bank lowers M1+ target in December

December 26, 2019

At its 26 December monetary policy meeting, the Central Bank of Uruguay lowered its target for the growth rate of the M1+ money supply in Q1 2020 to 6.0%–8.0%, from the previous quarter’s target of 7.0%–9.0%. The Bank also communicated that M1+ growth for the fourth quarter stood at 7.6%, which was in line with officials’ expectations, and kept its inflation target for the next 24 months unchanged at 3.0%–7.0%.

Stubbornly high inflation, expectations of persistently elevated inflation and continued volatility in the FX market all drove the Bank’s decision to slightly tighten the monetary policy stance in December. The Bank’s decision came against the backdrop of some recovery in economic activity, a sliding peso and elevated inflationary pressures. Inflation inched up from October’s 8.3% to 8.4% in November, thus moving further above the upper bound of the Central Bank’s 3.0%–7.0% target range.

Policy easing in the near-term remains unlikely as the Bank is committed to bringing inflation to within the target range. In its communiqué, the Bank remained somewhat cautious on the prospects of an economic improvement in the short-term, chiefly due to an unfavorable external backdrop and political and economic uncertainty in Argentina. However, it also remarked that progress made in the adoption of structural reforms in Brazil could translate into a more promising external outlook for Uruguay’s economy.

The next monetary policy meeting is scheduled for April.

FocusEconomics analysts currently see the money supply growing 9.0% in both 2020 and 8.0% in 2021.

Author: Massimo Bassetti, Economist

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