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Uruguay Monetary Policy May 2023

Uruguay: Central Bank stands pat in May

On 16 May, the Monetary Policy Committee of the Central Bank of Uruguay (BCU) decided to keep the policy rate unchanged at 11.25%. The hold follows a rate cut at its April meeting—the first among South America’s inflation-targeting countries.

Commenting on the decision, the Bank highlighted that inflation ticked up in April after six consecutive months of decline, while inflation expectations over the two-year policy horizon were broadly unchanged in the same month. Notably, both indicators remained slightly above the 3.0–6.0% target range. Additionally, the BCU stated that there is a risk that current inflation expectations materialize through indexation mechanisms in the formation of prices and wages. Meanwhile, the Bank sees the economy contracting in Q2 due to a production supply shock stemming from the recent drought. Against this fragile backdrop, the BCU decided to stand pat.

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

The next Monetary Policy Committee meeting is scheduled for 6 July.

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