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Uruguay Monetary Policy February 2022

Uruguay: Central Bank hikes its monetary policy rate again in February

At its 16 February meeting, the Monetary Policy Committee of the Central Bank of Uruguay decided to raise the monetary policy rate by 75 basis points to 7.25%. The decision marked the fifth consecutive rate hike since August 2021, after the Committee adopted a monetary policy rate and abandoned seven years of targeting money supply to control inflation in September 2020.

The Central Bank opted to hike the monetary policy rate to tame inflationary pressures, as inflation in June–January averaged above the upper bound of its 3.0%–6.0% target range. The Bank determined that the domestic economic recovery was showing further positive signs across consumption, investment, exports and labor market conditions, supported by the ongoing reopening of the domestic and global economies.

Looking ahead, the Bank kept its hawkish stance, explaining that “another increase of similar magnitude is anticipated in the next meeting, reaching a neutral level of the interest rate at the beginning of the second quarter of 2022.” As such, the majority of our panelists see additional rate hikes in the monetary policy rate before year-end.

Commenting on the monetary policy outlook, Diego Pereira, economist at JPMorgan, noted:

“We now believe the Board may need to hike the policy rate by 100 basis points in the next meeting, already situating the level above what is considered as neutral. Moreover, we expect additional tightening, with the policy rate climbing to 9.5% by Q3 2022 (+75 basis points in May and +50 basis points in July).”

The next monetary policy meeting is scheduled for 8 April.

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