Uruguay: Central Bank of Uruguay cuts rates in October
Bank cut rates more than expected: At its meeting on 7 October, the Central Bank of Uruguay (BCU) reduced the policy rate by 50 basis points to 8.25%, twice as much as the market had expected. The cut is the third consecutive and the largest since April 2024, bringing borrowing costs to their lowest level since March 2022.
Below-target inflation and lower inflation expectations drive the cut: With price pressures hovering near the BCU’s 4.5% target and inflation expectations cooling in September, the Central Bank saw room to ease its monetary policy. Moreover, the BCU nudged down its GDP growth forecasts for the next two years, further suggesting that there’s space for the Central Bank to keep cutting rates.
Central Bank to cut more: The BCU indicated that if price growth and inflation expectations continue to ease as expected, it may cut rates further. In line with this, our Consensus is for further rate cuts by the end of 2025. In 2026, our panelists expect the easing cycle to continue.
The BCU is scheduled to reconvene on 18 November.
Panelist insight: Commenting on the outlook, analysts at Itaú Unibanco stated:
“The central bank seems comfortable with inflation and inflation expectations converging. At this COPOM, they highlighted the downside of businesses’ inflation expectations. We expect the BCU to cut the policy rate bringing the rate down to 8% by the end of 2025.”