Uruguay: Central Bank leaves policy rate unchanged in May
BCU extends rate hold: At its meeting on 26 May, the Central Bank of Uruguay (BCU) kept its policy rate at 5.75%. This marks the second 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 drive the decision: Despite April’s inflation uptick to 3.2% and heightened upside risks to fuel prices due to the Iran war, the Bank held as 24-month-ahead inflation expectations remained around the BCU’s 4.5% target; Uruguay’s strong renewable power generation should insulate it from the inflationary effects of the war. On the GDP front, the BCU cited signs of recovery in Q1 economic activity and employment indicators, suggesting that the Bank does not need to cut rates to stimulate domestic demand.
BCU expected to hold ahead: The BCU did not provide explicit forward guidance. Most of our panel expects the Bank to remain on hold throughout 2026, with a minority anticipating it to hike rates. Much will likely depend on the course of the Iran war and its impact on fuel prices. The BCU is scheduled to reconvene on 30 June.
Panelist insight: On their policy rate outlook, Itaú Unibanco analysts Diego Ciongo and Soledad Castagna said:
“On the monetary front, we expect the policy rate to remain unchanged at 5.75% through 2026, as the Central Bank balances inflation risks against still-moderate domestic activity. Nonetheless, a rate hike cannot be ruled out, contingent on the extent of oil price pass-through to headline inflation and, more importantly, to inflation expectations.”