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Uruguay Monetary Policy November 2023

Uruguay: Central Bank trims rates in November

On 16 November, the Monetary Policy Committee of the Central Bank of Uruguay (BCU) reduced its policy rate by 25 basis points to 9.25%, following a 50 basis point cut at the prior meeting in October. As a result, rates have now been cut by 225 basis points since April.

The decision was justified by the fact that inflation remained within the 3.0–6.0% target range for the fifth straight month in October. Moreover, in October, core inflation was near the bottom of the target range. In addition, the Bank commented that market inflation expectations had continued to fall. That said, the Bank was likely wary of making a more aggressive cut due to market inflation expectations still being above the target range.

In its communiqué, the Bank reiterated that the policy rate was close to the bottom of the easing cycle. Our panelists currently expect around 100 basis points of further rate cuts by end-2024, having revised up their forecasts substantially over the last month. That said, the spread of end-2024 forecasts is wide, at 200 basis points.

Itaú Unibanco analysts are at the hawkish end of our panel:

“We now expect the central bank to remain on hold during 2024 (before we expected easing to eventually resume in 2024 taking the monetary policy rate to 8.50% by December 2024), amid tighter global financial conditions and abovetarget inflation expectations.”

EIU analysts are more dovish:

“We think that a disinflation trend will enable the Banco Central del Uruguay (BCU, the central bank) to ease the policy rate from 10% currently to 9% by end-year. We expect the BCU to be fairly cautious with its easing cycle, as a narrowing interest-rate differential with the US may cause peso depreciation, […] We expect that the BCU will keep easing to a neutral rate of 7.5% by 2025.”

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