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Uruguay Monetary Policy May 2022

Uruguay: Central Bank delivers another rate hike in May

At its 17 May meeting, the Monetary Policy Committee of the Central Bank of Uruguay decided to deliver a 75 basis-point increase in a split vote, bringing the monetary policy rate to 9.25%. The move, which came on the heels of April’s 125 basis-point increase, marked the seventh consecutive hike since August 2021. With the latest increase, the Bank stated that monetary policy had entered contractionary territory.

The Bank’s decision was driven by the further acceleration of both core and headline inflation. Booming commodity prices—especially for food and fuel—have continued to push up inflationary pressures. Further, inflation and inflation expectations remained entrenched well above the upper bound of the Central Bank’s 3.0–6.0% target band. Additionally, the economy is now above pre-pandemic levels, giving the Bank more room to continue its path to tighten conditions.

Looking ahead, the Bank maintained its hawkish tone, and signaled at least two more hikes in future meetings, although they are expected to be smaller in size at 50 basis points. Our panelists are likely to revise their year-end forecasts upwards in the coming weeks.

The next monetary policy meeting is scheduled for 6 July.

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