Good News for Uruguay’s Economy
Uruguay’s year-on-year inflation rate has dropped to 4.59% in June, marking its fourth consecutive monthly decline. This figure is very close to the Uruguay’s Central Bank (BCU) target of 4.5% and keeps inflation within the 3% to 6% tolerance range for the 25th consecutive month.
What’s Behind the Drop?
The Consumer Price Index (CPI) showed a 0.09% decrease in June and a cumulative increase of 2.73% for the first half of the year. Key factors contributing to the monthly decline were decreases in Food and Non-Alcoholic Beverages, particularly milk, dairy products, eggs, fruits, nuts, vegetables, tubers, and legumes. In contrast, Housing costs saw a slight increase due to higher rents and firewood prices. Transportation also saw a decrease.
A Commitment to Low Inflation
Uruguay’s Central Bank (BCU) President Guillermo Tolosa emphasized the institution’s commitment to achieving and maintaining the 4.5% inflation target, noting that the country is experiencing its best inflationary period in 80 years. "We are already close to the target; now we must travel that last mile so that inflation is within international standards and we have a mature monetary regime," he said.
The Effectiveness of Interest Rates
Tolosa also highlighted the effectiveness of using interest rates as a monetary policy tool without foreign exchange market intervention. "A reinforced regime is required to meet that target, which we have set at 4.5%, which the Central Bank’s technical teams expect to be achievable, barring any major shocks to the Uruguayan economy, within the next 12 months," he added. "There was skepticism about whether the rate would work in Uruguay, but we see that it did work, as in other mature emerging countries," Tolosa also pointed out.
The Use of Interest Rates in Monetary Policy
The use of interest rates as a monetary policy tool has been a key factor in Uruguay’s success in reducing inflation. By adjusting interest rates, the Central Bank can influence the amount of money in circulation and the level of economic activity, which in turn can help to control inflation. This approach has been effective in other countries, and it seems to be working in Uruguay as well.
Conclusion
In conclusion, Uruguay’s inflation rate is getting closer to the target of 4.5%, which is a positive sign for the country’s economy. The Central Bank’s commitment to achieving and maintaining this target, combined with the effectiveness of using interest rates as a monetary policy tool, suggests that Uruguay is on the right track. With careful planning and management, the country should be able to achieve its goal of low inflation and a stable economy, which will benefit businesses, consumers, and the country as a whole.
