Uruguay: Central Bank fails to hold money supply within reference range
October 7, 2013
At its 7 October 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 June.
The Central Bank had set a target range of between 12.5% and 13.0% for M1 annual growth in the third quarter in an effort to halt increasing inflationary pressures and the debilitation of the Uruguayan peso. However, M1 rose 14.8% in Q3, which was above the range that the Bank had targeted in June. According to the Bank's accompanying statement, the unexpected growth in GDP in the second quarter - which expanded 5.6% - drove up demand for money and accelerated inflation. In order to prevent a scarcity in pesos that could threaten local financial stability, the Bank decided to increase the M1 annual growth target to 15.0% to 17.0% for Q4.
The evolution of consumer prices returned to the spotlight after inflation soared in recent months, reaching a 10-month high in September. According to the Bank, the rise in consumer prices was not only a consequence of demand-driven factors but also because of, "climate aspects and supply restrictions." That said, the Bank maintained its current inflation target range of between 4.0% and 6.0%. Starting in July 2014, the target range will be from 3.0% to 7.0%. The next Monetary Policy Committee meeting will take place in early January 2014.