Inflation falls into target range, but pressure to boost growth is rising
The positive news is that, after 32 months above the 4 ± 1% y/y target range, inflation fell into range in May, and in June stood at the 4% y/y midpoint. But the negative news is the weak January-May economic growth, of just 1.4% y/y. These two reports together led to monetary policy easing.
June began with a 50 bps cut in the monetary policy rate, and the creation of liquidity facilities for $1.7 billion, allowing banks to channel resources at reduced interest rates. But the pressure to boost growth meant that June ended with an additional 25 bp monetary policy cut, and an additional increase of $0.45 billion in liquidity facilities. It remains to be seen how quickly the monetary policy transmission mechanisms will affect economic activity acceleration.
The exchange rate in June maintained the upward trend that began on May 13th, to accumulate a nominal depreciation of 1.8%, insufficient to reverse the appreciation seen in the first four and a half months of 2023. Between December 30th, 2022 and June 30th, 2023, appreciation was -1.47%.
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