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Uruguay Monetary Policy October 2022

Uruguay: Central Bank delivers tenth consecutive hike in October

On 6 October, the Monetary Policy Committee of the Central Bank of Uruguay (BCU) increased the policy rate from 10.25% to 10.75%. The move marked the tenth consecutive hike and takes total tightening to 500 basis points this year.

In its press release, the Bank reiterated its concerns over rigid inflation expectations, which stood at 7.0% for October 2024 and over rising inflation, which reached 9.9% in September—both above the 3.0–6.0% target range. Additionally, the BCU highlighted that national accounts data from Q2 and leading indicators in Q3 pointed to strong economic momentum; hence, the Bank had room to hike.

The Bank’s forward guidance remained hawkish. The Committee pointed out that this hike was in line with previous statements and asserted that it would keep the same path in the following meetings. Accordingly, our panelists project additional interest rate increases by year-end. The next monetary policy meeting is scheduled for 15 November.

Diego W. Pereira, economist at JPMorgan, commented on the outlook:

“Given the difficulties in breaking inflation expectations’ persistency, we now pencil in the policy rate climbing to 11.75% by the year-end, which is consistent with 50bp in November and 50bp by the end of the year (the last policy meeting of 2022 is scheduled for Dec-30). The forecast risk is still skewed to the upside on the rigidity of inflation expectations.”

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