Uruguay: Central Bank of Uruguay hikes in February
Central Bank tightens its stance again: At its first meeting of 2025, on 13 February, the Central Bank of Uruguay (BCU) decided to increase its policy rate by 25 basis points to 9.00%. The decision was unanimous and marked the second consecutive hike.
Higher core inflation and rising inflation expectations drive the hike: The rate increase aimed at ensuring that inflation and its expectations converge to the midpoint of the BCU’s 3.0–6.0% target range. In January, though headline inflation eased to 5.0%, core inflation rose to 6.1%, stepping out of the target band for the first time since April 2023. Similarly, inflation expectations rebounded from recent historical lows, also outpacing the upper bound of the target range and supporting the Bank’s decision further. That said, the Bank noted heightened uncertainty regarding the growth outlook amid volatile U.S. trade policy under President Trump, likely dissuading the Bank against a larger rate hike.
Risks tilted to the upside: The communiqué did not provide specific forward guidance on future interest rate decisions. However, the new board taking office on 1 March has reaffirmed its commitment to reduce inflation. Moreover, though the BCU forecasts inflation to ease from Q2 onward, our panelists expect it to accelerate in Q2–Q3, hinting at upside risks to rates. Additional upside risks stem from a tighter-than-expected Fed monetary policy: The BCU may seek to stabilize the peso by maintaining the interest-rate differential. The Bank will reconvene on 8 April.