Uruguay raises rate 4th time, sees 2 more rate hikes

      Uruguay's central bank raised its interest rate for the fourth time since August 2020 and said it expects to raise the rate by the same amount at the next two monetary policy meetings, which means the interest rate would reach a neutral level at the beginning of the second quarter.

     The Central Bank of Uruguay (CBU) raised its reference rate by 75 basis points to 6.50 percent and has now raised it by 2.0 percentage points since it began what it said was an exit from "the most expansive phase of monetary policy" by raising its rate in August last year.
     The August rate hike was then followed up with rate hikes in October, November and today.

     The bank's board next two meetings are scheduled for Feb. 16 and April 8.

     CBU's board said inflation expectations rose for the second consecutive month and to ensure expectations converge to its target, it would continue with the gradual increase in interest rates until expectations return to its target.

     Inflation in Uruguay rose to 7.96 percent in December, the highest rate since March, from 7.86 percent in November and CBU said expectations two years ahead were now at 6.55 percent, with expectations by businesses at 8.0 percent while financial markets priced in inflation of 7.21 percent.

     Uruguay's central bank targets inflation in a range of 3.0 to 6.0 percent.

     The central bank added growth in the domestic economy accelerated and this is expected to continue in coming moths with the economic recovery continuing in the first quarter of 2022, driven partly by the opening of international borders and the recovery of tourism.

    www.CentralBankNews.info

     

 

This week in monetary policy: Israel, Poland, Uruguay and Peru

     This week - January 3 through January 8 - central banks from 4 countries or jurisdictions are scheduled to decide on monetary policy: Israel, Poland, Uruguay and Peru.

     Following table includes the name of the country, the date of the next policy decision, the current policy rate, the local time a policy decision is announced, the result of the last policy decision, the change in the policy rate year to date, and the rate one year ago.
    The table is updated when the latest decisions are announced and can always be accessed by clicking on This Week.

WEEK 1
JAN 3 - JAN 8, 2022
ISRAEL	3-Jan	0.10%	16:00	0	0	0.10%	DM
POLAND	4-Jan	1.75%		50	0	0.10%	EM
URUGUAY	5-Jan	5.75%	15:00	50	0	4.50%
PERU	6-Jan	2.50%		50	0	0.25%	EM

 
    www.CentralBankNews.info

Trifecta of Latam cenbanks raise rates to curb inflation

     A trifecta of Latin American central banks - Mexico, Peru and Uruguay - raised their benchmark interest rates further to drive down inflation expectations that are continuing to rise amid inflation rates that are well in excess of the central banks' target.

     The Bank of Mexico (Banxico) raised its rate by another 25 basis points to 5.0 percent, its fourth rate hike this year, and has now raised the rate a net 75 points this year following earlier rate hikes in June, August and September.
     The Central Bank of Uruguay (CBU) raised its monetary policy rate by 50 basis points to 5.75 percent, its third hike this year, and has now raised it 1.25 percentage points this year following earlier hikes in August and October.
     The Central Reserve Bank of Peru (BCRP) raised its reference rate by 50 basis points to 2.0 percent, its fourth hike this year, and has now raised it 1.75 percentage points following earlier hikes in August, September and October.
     Today's three rate hikes boosts the number of rate hikes worldwide this year to 88, more than six times the number of rate cuts, with 39 of those cuts by emerging market central banks.
      As most central banks, Banco de Mexico considers the forces boosting inflation to be transitory but it also said the time horizon of this process is unknown and is affecting a wide range of products, while price increases are of a "considerable magnitude."
     "This poses greater risks to the price formation process and to inflation expectations," Banxico said, adding this was the main reason for continuing to reinforce its monetary policy stance to ensure inflation converges to its 3.0 percent target.
      Mexico's inflation rate rose to 6.24 percent in October from 6.0 percent in September and the central bank said inflation expectations for the next 12 months and for 2022 rose again while longer-term expectations remain stable at levels that exceed its target.
     Banxico raised its forecast for headline inflation in the fourth quarter of this year to 6.8 percent from September's forecast of 6.2 percent but lowered the forecast for inflation in the fourth quarter of 2022 to 3.3 percent from 3.4 percent.
     By the third quarter of 2023 Mexico's inflation rate is seen easing further to 3.1 percent.

     Uruguay's central bank said its monetary policy committee considers it necessary to consolidate the process of reducing inflation expectations during the current economic recovery and the gradual process of exiting from a expansionary monetary policy phase is expected to continue in upcoming policy decisions.
     Uruguay's inflation rate rose to 7.89 percent in October from 7.41 percent in September.

     CBU reiterated that as long as there are no setbacks in public health, the priority of monetary policy is to drive inflation expectations to the center of its target range of 3.0 to 6.0 percent over the next 2 years.

     Peru's central bank reiterated its statement from October that the monetary policy stance remains expansionary and today's rate hike does not necessary imply a cycle of successive rate hikes.

     Peru's inflation rate rose to 5.83 percent from 5.23 percent in September but BCRP said it expects inflation to return to its target range of 2.0 percent, plus/minus 1 percentage point, in the second half of next year as the impact of transitory factors on inflation, such as the exchange rate, fuel and grain prices, reverse and economic activity remains below its potential level.

     But the bank also said inflation expectations were slightly above the upper limit of the target range at 3.3 percent for 2022 and its board said it was attentive to new information about inflation expectations and economic activity and will consider changes to its monetary policy stance if necessary.

     www.CentralBankNews.info

     

Uruguay raises rate 2nd time, expects further hikes

    Uruguay's central bank raised its key interest rate for the second consecutive month and said it expects to "continue with the gradual exit from the most expansive phase of monetary policy" for the remainder of 2021, taking into account the reaction of inflation expectations and the country's health and economic situation.
    The Central Bank of Uruguay raised its monetary policy rate by 25 basis points to 5.25 percent and has now raised it by 75 points this year following a 50-point hike in August.
     It is the central bank's second rate hike since September last year when it adopted the current monetary policy framework, including the policy rate, instead of targeting money supply to control inflation, which has plagued the country for decades.

     As in August, the central bank said the priority of monetary policy is to drive inflation expectations to the center of its target range of 3.0 to 6.0 percent.

     After decelerating in the first four months of the year, Uruguay's inflation rate has stabilized in the last four months and eased to 7.41 percent in September from 7.59 percent in August.

     Despite the decline, the central bank said inflation was above the upper limit of its target range and core inflation remains around 8 percent. 

      While inflation expectations are converging toward the target, they remain out of range, the bank said, adding expectations 24 months ahead have eased to 6.9 percent.

      In the second quarter of this year, Uruguay's economy grew an annual 11.3 percent after contracting for six consecutive quarters and the central bank said data shows this growth trend continued in the third quarter, in line with its latest forecast for 3.5 percent expansion this year.

     www.CentralBankNews.info

      

Uruguay becomes 22nd central bank to raise rates

     Uruguay's central bank raised its key interest rate to ensure inflation expectations are in line with its target range and said future changes in the monetary policy stance would depend on how inflation expectations react to this change move along with the country's economy and the population's health.

      The Central Bank of Uruguay raised its monetary policy rate by 50 basis points to 5.0 percent, the first change in its rate since September last year when it adopted a policy rate and abandoned targeting money supply to control inflation that has plagued the country for decades.

      Uruguay becomes the 22nd central bank that has raised its key interest rates this year in response to growing inflationary pressures and the fourth central bank in Latin America after Brazil, Chile and Mexico.

      The rate hike follows months of warnings by the central bank about the need to raise rates to control inflation once the economy begins to recover from the COVID-19 pandemic, which led to a 5.9 percent contraction in the country's gross domestic product last year.

      At its previous meeting on July 6, for example, the bank's monetary policy committee (Copom) said it was still waiting for more signs on a recovery of economic activity but once this starts, interest rates will be raised gradually to affect inflation expectations.

      Today, Copom said the health situation in Uruguay had improved "substantially," and economic activity is showing signs of recovery, with progress in various sectors and unemployment is falling.

      "Within this framework, the Committee understands it is necessary for monetary policy to begin to leave its most expansive phase in order to follow a gradual path of adjustment of the interest rate and, therefore, to increase the monetary policy rate to 5%," the central bank said.

      As long as there are no setbacks in the health situation, the priority of monetary policy will be to drive inflation expectations to the center of the target range of 3.0 to 6.0 percent, the bank added.

     Inflation in Uruguay has been declining steadily in recent months to 7.3 percent in June and July from over 9 percent in February but remains above the central bank's target range.

      In its second quarter monetary policy report from last month, the central bank forecast inflation would average over 7 percent this year due to higher fuel costs and commodities but then return to its target in the second quarter of 2022.

      After last year's economic contraction, the central bank expects the economy to expand 3.5 percent on average the year,  with growth slowing somewhat in 2022.

      In the first quarter of this year Uruguay's GDP shrank 2.8 percent year-on-year, the sixth consecutive quarter of contraction on an annual basis.

     www.CentralBankNews.info