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Uruguay Monetary Policy April 2023

Uruguay: Central Bank cuts rates in April

On 19 April, the Monetary Policy Committee of the Central Bank of Uruguay (BCU) cut the policy rate to 11.25% from 11.50%. The move surprised markets on the downside; it had been widely expected that the Bank would leave the rate unchanged.

The Bank’s decision was chiefly driven by the disinflationary trend that started in October and continued into March, when inflation came in at 7.3%—edging closer to the 3.0–6.0% target range. Consecutive quarter-on-quarter GDP contractions in Q3 and Q4 and a weak start to the year provided further impetus to cut rates. A key driver of the downturn is the severe ongoing drought stemming from the La Niña phenomenon. Notably, the Bank highlighted that the drought had pushed up food inflation at the outset of the year.

The BCU did not provide explicit forward guidance. Instead, it reiterated that future decisions would be driven by the evolution of inflation expectations. The next Monetary Policy Committee meeting is scheduled for 16 May.

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