In today's monetary policy meeting, the central bank's Monetary Policy Committee hiked the policy rate by 25 bps to 9.0% (marking the second consecutive increase). The decision aims to consolidate the continued decline in inflation to the Monetary Policy Horizon (MPH) target of 4.5%. The statement mentioned that the decision was unanimous, meaning that the member of the board from the opposition Frente Amplio (Ignacio Berti) supported the decision for the second consecutive meeting.
Higher inflation expectations led to a contractionary monetary policy stance. In the press release, the central bank highlighted that inflation expectations rose to 6.12% in January, according to the BCU's survey of analysts. The committee also stated that core inflation accelerated in January and is outside the target range for the first time since April 2023. As a result, we estimate the ex-ante real policy rate at 2.7% (using expectations for the policy horizon), above the BCU's estimate of the neutral real rate at 2.5% and is once again (slightly) in contractionary territory.
Our take: The BCU's decision takes place in the context of rising inflation expectations. We will have more details on the decision in the minutes to be published on February 18. The next policy meeting will be held on April 8 with a new composition of the Monetary Policy Committee in a new administration that will take office on March 1.