Uruguay monetary policy december 2022

At the December 30 meeting, the Monetary Policy Committee of the Central Bank of Uruguay (BCU) raised the interest rate from 11.25% to 11.50%. The move marked the 12th consecutive hike and took a complete tightening since the start of the hike cycle in August 2021 to 700 bps.

Commenting on the decision, the bank noted that inflation fell to 8.5% in November, which – albeit still above the target range of 3.0-6.0% – was lower than expected by the committee. Moreover, the WTO highlighted that inflation expectations over the two-year policy horizon eased to 6.8% in December from 7.0% in November. Meanwhile, the bank commented that the international landscape is favourable. Commodity price easing bodes well for imported inflation. Healthy activity in the European Union, a positive outlook in China, and smaller interest rate increases by the Federal Reserve should support external demand and reduce pressure on the currency. Altogether, these developments have slowed BCU’s hiking pace from 50 bps to a high of 25 bps.

The Bank’s forward guidance has become significantly less hawkish; Do not expect any additional interest rate increases. However, it stated that it will continue to monitor domestic and international economic conditions to ensure inflation and inflation expectations are close to the target range. The next monetary policy meeting is scheduled for February 15th.

FocusEconomics panelists see the monetary policy rate ending in 2023 at 9.85% and 2024 at 8.20%.

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