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Uruguay Monetary Policy June 2020

Uruguay: Central Bank raises M1+ target to help the recovery

At its 25 June monetary policy meeting, the Central Bank of Uruguay increased its target for the growth rate of the M1+ money supply in Q3 2020 to 7.0%–10.0%, from the previous quarter’s target of 3.0%–5.0%. The Bank also communicated that M1+ growth for the fourth quarter stood at 11.0%, which was well above officials’ expectations, and kept its inflation target for the next 24 months unchanged at 3.0%–7.0%.

The higher-than-expected growth in M1+ in Q2 was due to precautionary reasons pushing businesses and consumers to hoard money in the face of the uncertain economic outlook amid the health crisis. Meanwhile, inflationary pressures intensified notably, despite lower price pressures for untradeable goods, as FX passthrough translated into higher prices for imports. The Bank’s decision to increase the target for liquidity in Q3 stemmed from the need to sustain a recovery in economic activity, despite elevated inflationary pressures.

Policy easing in the near-term is therefore to be expected as the Bank is committed to supporting the economy. In its communiqué, the Bank stated that once economic activity begins to recover, it will start absorbing liquidity so as to bring inflation within the 3.0%-7.0% target range.

The next monetary policy meeting is scheduled for September.

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