Uruguay: Central Bank leaves policy rate unchanged in July
BCU extends rate hold: At its meeting on 1 July, the Central Bank of Uruguay (BCU) kept its policy rate at 5.75%. This marks the third consecutive hold, following an expansionary phase from July 2025 to March 2026 during which the Bank implemented 350 basis points in total rate cuts.
Anchored inflation expectations drove the decision: Despite May’s inflation uptick to 3.8%, the Bank held as 24-month-ahead inflation expectations have remained around the BCU’s 4.5% target. The Bank also highlighted the recent easing of geopolitical tensions in the Middle East and the consequent diminishing pressure on global energy prices. However, policymakers noted that uncertainty surrounding the conflict’s evolution and weather effects stemming from El Niño present upside risks to the inflation outlook, thereby ruling out a rate cut for the time being. On the GDP front, the BCU cited dynamism in economic activity and employment indicators.
BCU likely to hold ahead: The BCU did not provide explicit forward guidance. Our panel remains divided between those expecting the Bank to remain on hold throughout 2026 and those anticipating it to hike rates. Much will hinge on the evolution of the Middle East conflict and its impact on fuel prices, the magnitude of global exchange rate pressures, and the effects of the El Niño weather phenomenon.
The BCU is scheduled to reconvene on 18 August.
Panelist insight: On the policy rate outlook, Itaú Unibanco analysts Diego Ciongo and Soledad Castagna said:
“We expect the policy rate rise to 6.25% by end-2026, particularly if a stronger global dollar, a more restrictive Fed stance, or renewed exchange-rate pressures lead to a less favorable inflation environment. That said, today’s communication suggests that the bar for tightening has increased somewhat, reflecting the Board’s assessment that inflation expectations remain well anchored and that the recent pickup in inflation is largely transitory.”