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Uruguay Monetary Policy July 2019

Uruguay: Central Bank maintains M1+ target in July

At its 12 July monetary policy meeting, the Central Bank of Uruguay maintained its target for the growth rate of the M1+ money supply in Q3 2019 at 8.0%–10.0%, unchanged from previous quarter’s target. The Bank also confirmed that M1+ growth for the second quarter stood at 10.0%, which was in line 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 came against the backdrop of gradually moderating inflationary pressures, a sliding peso and tumbling economic activity. Inflation remained elevated and continued trading above the Bank’s 3.0%–7.0% target range throughout the second quarter, although price pressures eased considerably in recent months (June: 7.4%; May: 7.7%). In addition, the peso continued losing ground against the greenback—the Uruguayan currency performed worse than most of its emerging markets counterparts in recent months—which left the Bank with little option but to maintain a moderately contractive monetary policy stance in July.

In its communiqué, the Bank hinted at worsening inflation expectations, with the headline rate now projected to stand at 7.66% by the end of the policy horizon, up from the previous estimate of 7.25%. Consequently, policy easing in the near-term remains unlikely as the Bank remains committed to bringing inflation closer to the target range. Nevertheless, a further deterioration in the economy following Q1’s contraction—the first since 2015—might push the bank to rethink its strategy.

The next monetary policy meeting is scheduled for October.

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