Uruguay Monetary Policy


Uruguay: M1+ growth stays within Central Bank's target, but inflation remains high

July 10, 2014

At its 10 July Monetary Policy Committee meeting, the Central Bank reiterated its contractive stance and also reaffirmed its long-term monetary aggregate (M1+) growth target of 8.0%, thus maintaining the decision it took in April.

The Bank did not change its rhetoric significantly with respect to April’s statement. It acknowledged the ongoing process of reversal in the monetary easing cycle in the United States, as well as a degree of economic uncertainty in the Eurozone and Japan. The Bank also commented that the Chinese economy is expected to slow down.

Regarding the Uruguayan economy, the Bank said that, although there has been a deceleration recently—GDP growth slowed from a 4.6% annual expansion in Q4 2013 to a 2.4% rise in Q1—growth remains above expectations. Moreover, the Bank sees the economy converging to potential GDP growth and thus sees the output gap narrowing. However, monetary authorities continue to point to high inflation as the main threat to balanced growth in the coming quarters. Nevertheless, annual inflation has not dropped below 9.0% since the beginning of the year and it remains the main concern in the political debate over the economy.

According to the Bank’s accompanying statement, M1+ expanded 10.4% in the second quarter, which was down from the 11.5% growth tallied in the first quarter. Therefore, the Bank achieved its goal of keeping M1+ growth within the range of 10.0% to 13.0% that it targeted in April. As inflation remains high, monetary authorities decided to continue to target lower rates of growth for M1+ and they fixed a new range of 9.0% to 12.0% for the third quarter.


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Uruguay Monetary Policy Chart

Uruguay Money June 2014

Note: Year-on-year changes, 3-month average variation of M1+ and M1+ growth target in %. The Uruguay Central Bank (BCU) introduced the 8% target for M1+ growth in June 2013.
Source: Uruguay Central Bank (BCU).

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