MercoPress. South Atlantic News Agency

Uruguay central bank increases rate, anticipates a 'contractive monetary policy' to combat inflation

In Uruguay inflation expectations remain far from their target, while economic activity has achieved pre-pandemic level, reflected in the jobs market

Uruguay's central bank on Tuesday announced an increase of 75 basis points to 9,25%, in its monetary policy reference rate, meaning also the bank has entered the contractive phase, as so many other Latin American central banks, in an effort to rein in inflation.

The release from COPOM, the Monetary Policy Committee also anticipated at least two more 50 basis points additional increases in coming meetings, to ensure the convergence of current inflation with the targets established by the bank are finally met.

The decision was the result of assessing different aspects of domestic, regional and international factors. In Uruguay inflation expectations remain far from their objective, while economic activity has achieved pre-pandemic level, which is reflected in the positive employment stats.

In the region and the rest of the world, inflation continues to batter targets, making central banks adopt a more contractive focus, as can be seen in such world leading banks as the United States Federal Reserve. In this context, instability, low global and regional growth, a major deterioration of financial conditions and greater inflationary pressures, are risks to be closely monitored.

Finally in this scenario, the Uruguayan central bank valued positively the functioning of the transmission channels of monetary policy, which so far have been working according to expectations.