Uruguay: Central Bank of Uruguay cuts rates in August
Bank extends its easing cycle: At its meeting on 19 August, the Central Bank of Uruguay (BCU) unanimously decided to lower its policy rate by 25 basis points for the second consecutive time, to 8.75%, matching market expectations.
Declining inflation drives the cut: Domestic inflation was the main factor that influenced the decision. In July, price pressures fell for the fourth consecutive month. Moreover, two-year ahead inflation expectations reached new historic lows and approached the midpoint of the Bank’s 3.0–6.0% target range.
More rate cuts on the cards by end-2025: The BCU indicated that it could cut rates further if inflation evolves as expected and consumer expectations regarding prices continue to decline. In line with this, all of our panelists expect further rate cuts by the end of 2025.
An upside risk to interest rates is posed by expansionary fiscal policies under the Orsi administration, which, in boosting real wages and pensions, could fuel inflation. Meanwhile, the main downside risk to interest rates is a stronger-than-anticipated peso.
The BCU is scheduled to reconvene on 7 October.
Panelist insight: Commenting on the outlook, analysts at Itaú Unibanco stated:
“We now expect the BCU to cut the policy rate during the next few policy meetings, bringing the rate down to 8% by the end of 2025. […] The goal of gradually reducing the monetary policy rate in this scenario is to sustain the recovery of economic activity without compromising macroeconomic stability and ensuring inflation expectations continue to converge to the 4.5% inflation target.”