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Uruguay Monetary Policy October 2019

Uruguay: Central Bank lowers M1+ target in October

At its 9 October monetary policy meeting, the Central Bank of Uruguay lowered its target for the growth rate of the M1+ money supply in Q4 2019 to 7.0%–9.0%, from the previous quarter’s target of 8.0%–10.0%. The Bank also confirmed that M1+ growth for the third quarter stood at 8.2%, which was in line officials’ expectations, and kept its inflation target for the next 24 months unchanged at 3.0%–7.0%.

The Bank’s decision came against the backdrop of faltering economic activity, a sliding peso and elevated inflationary pressures. Inflation was stable at the previous month’s 7.8% in September, thus remaining firmly entrenched above the upper bound of the Central Bank’s 3.0%–7.0% target range. Stubbornly high inflation, expectations of persistently elevated inflation, challenging macroeconomic conditions—the economy only narrowly avoided a technical recession in Q2—and notable volatility in the exchange market all drove the Bank’s decision to maintain a moderately contractive monetary policy stance in October.

In its communiqué, the Bank remained somewhat bearish on the prospects of an economic upturn in the short-term, chiefly due to challenging external conditions and political and economic uncertainty in Argentina and Brazil. That said, policy easing in the near-term remains unlikely as the Bank is committed to bringing inflation to within the target range.

The next monetary policy meeting is scheduled for December.

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