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Uruguay Monetary Policy July 2023

Uruguay: Central Bank resumes easing cycle in July

On 6 July, the Monetary Policy Committee of the Central Bank of Uruguay (BCU) delivered a 50 basis point cut, bringing the policy rate down to 10.75%. The move marked the continuation of the monetary policy easing cycle that the Bank kicked off in April but paused in May.

In its communiqué, the Bank noted that headline inflation fell into the 3.0–6.0% target range in June, coming in at 6.0%—the lowest level since September 2017. Meanwhile, inflation expectations over the two-year policy horizon declined to 7.1%, remaining above the Bank’s target. The BCU expects further reductions in expectations in the coming months thanks to the downtrend in price pressures and the tighter monetary policy stance, and projects inflation to remain within its target range over the next two years. Meanwhile, the BCU expects the Uruguayan economy to have fallen into contraction in Q2 and to recover mildly in Q3. This bleak growth outlook, coupled with a strong peso, gave further impetus for a rate cut.

The Bank did not provide explicit forward guidance. Instead, it reiterated that future decisions would be driven by the evolution of inflation and inflation expectations. Our panelists see the BCU cutting rates further before year-end.

The next Monetary Policy Committee meeting is scheduled for 15 August.

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