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Uruguay Monetary Policy August 2022

Uruguay: Central Bank hikes rates further in August

On 15 August, the Monetary Policy Committee of the Central Bank of Uruguay (BCU) increased the policy rate from 9.75% points to 10.25%. The move marked the ninth consecutive hike and takes total tightening to 450 basis points this year.

The Bank’s decision aimed to tame inflation and to anchor worryingly rigid inflation expectations. Inflation was 9.6% in July, while expectations for July 2024 were at 7.3%, both well above the 3.0–6.0% target range. Healthy domestic economic activity provided the leeway for the Bank to hike: The BCU stated that the economy rebounded in H1 and that—in line with high-frequency indicators—it expects further recovery in Q3.

The Bank’s forward guidance remained hawkish. The committee reiterated its concerns about inflation expectations and its intention to hike further in the next meetings. In line with this, our panelists project higher rates later this year. The next monetary policy meeting is scheduled for 6 October.

Commenting on the monetary policy outlook, Diego W. Pereira, economist at JPMorgan, said:

“Given there are still three policy meetings scheduled before the year-end (the last for Dec-30), we now pencil in the policy rate climbing to 11.50% (25bp above our prior estimate). That assumes 2x50bp (in October and November) and an additional 25bp by the end of the year. We note the forecast risk is tilted to the higher policy rate, given the difficulties in breaking inflation expectations persistency.”

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