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Uruguay Monetary Policy February 2021

Uruguay: Central Bank stays put in first meeting of 2021

At its first meeting of the year on 11 February, the Monetary Policy Committee of the Central Bank of Uruguay kept the monetary policy rate on hold at 4.50%.

The decision to keep the rate unchanged came against the backdrop of continued uncertainty regarding the economic environment and moderating inflationary pressures. Although the outlook for the global economy has improved, heightened uncertainty remains with regard to the regional economic situation amid the lingering presence of the pandemic, and poses a downside risk to growth prospects. Consequently, keeping an expansionary stance prevents any further restriction on economic activity and ensures liquidity in the financial system. Turning to price pressures, inflation continued to ease at the beginning of the year, dropping to 8.9% in January (December 2020: 9.4%). That said, it still remained well above the Bank’s 3.0%–7.0% target range.

In terms of forward guidance, the Bank signaled in its communiqué that the high level of uncertainty regarding the trajectory of the pandemic calls for an accommodative monetary policy stance at least through the first half of 2021.

This is a view shared by Louis Mullen, economist at Oxford Economics, who noted:

“The central bank will [..] maintain its expansionary stance in H1 2021 to help support economic activity, as the government is fiscally constrained.”

The next monetary policy meeting is scheduled for 26 March.

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