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The rate of inflation in Uruguay has dropped significantly in recent decades but still remains high. The Monetary Policy Committee announced that it will use the interest rate as an instrument of monetary policy and set it at 4.5% per year. It also ratified the new target range of 3% to 6% from September 2022.
In July 2020, the balance of current credit granted by commercial banks to private sector grew at a nominal annual rate of 4.9% (1.3% real), lower than the nominal rate observed the previous month (6.5%) and the nominal rate of 8.6% registered in the same month of 2019, reducing its dynamism for the third consecutive month.
The financial system maintains its stability, five months after the start of the pandemic, supported by the adequate levels of capitalization and liquidity of the banking system, as well as the special regulatory measures adopted by the financial authorities.
In June, total credit granted to the private sector and total banking deposits slowed down as the tailwind effects associated with the pandemic (e.g. precautory savings, demand of credit lines) slowly fade and gradually leave the spotlight to the adverse effects of the economic recession.
Nowadays, unlike in the 2008 global financial crisis, there is no credit crunch which would make the economic recovery more difficult. This time, what's happening to credit?
The COVID-19 pandemic is turning society's finances into a mixture of two diametrically opposed worlds, much the same as the tiny Lilliput and the gigantic Brobdingnag from Jonathan Swift's dystopian world in Gulliver's Travels.
The Central Bank kept in August the policy rate at 0,25%, renewed its commitment to maintain a very ease stance for a prolonged period of time, and underlined its efforts to provide liquidity to the market.
The economic situation that the world is facing is different from what we have experienced in the last 70 years. In this crisis, the Colombian financial system entered with strong capital and liquidity positions, which has allowed it to absorb the shock and serve as an instrument for the implementation of public policies.