What is a Monetary Policy?
One of the main targets of the Central Bank is price stability, in order to preserve currency value, that is, the purchasing power of the Uruguayan peso. To achieve this, our institution implements an inflation target regime through which it undertakes to make every necessary effort to keep inflation within the target range established by the Macroeconomic Coordination Committee.
A stable currency contributes, among other things, to production growth, economic and social development, job creation, and to maintain the value of the citizens' income. A low inflation environment enables economic agents to predict the future with less uncertainty and make better economic and financial decisions (savings, investments, consumption, etc.). High inflation translates into a “tax” on society that negatively affects mainly those who cannot “defend themselves”, thus generating more social inequity.
Monetary policy refers to the set of actions led by the Central Bank of Uruguay aimed at achieving inflation goals. The main decisions in this matter are made by the Board of Directors of the Central Bank of Uruguay through the Monetary Policy Committee (COPOM in Spanish) in coordination with the Macroeconomic Coordination Committee.
How does the Monetary Policy work?
The current monetary policy in Uruguay can be described as an inflation targeting system based on interest rates. In this monetary arrangement the main reference variable is the interbank overnight rate.
The aim of the monetary policy is that this rate sends a signal to the rest of the economy's interest rates consistent with the inflation target.