Uruguay: Central Bank of Uruguay leaves rates unchanged in May
Central Bank maintains tight stance: At its 27 May meeting, the Central Bank of Uruguay (BCU) unanimously decided to keep its policy rate unchanged at 9.25%—the highest level since late 2023. The hold followed a 25 basis point hike in April as the Bank committed to consolidate its monetary policy tightening cycle.
Stubborn core inflation and above-target inflation expectations drive decision: Looking at the factors that influenced the decision, on the one hand, inflation has remained within the 3.0–6.0% tolerance band for two years and inflation expectations have recently declined; moreover, short-term GDP growth indicators have softened and the Bank’s inflation forecasts were revised downward. On the other hand, core inflation remains stubbornly high. Furthermore, inflation expectations still sit above the 4.5% target. These conflicting signals prompted the BCU to leave rates unchanged to support further disinflation and anchor expectations to its target.
BCU to remain hawkish: The Central Bank did not offer explicit forward guidance. That said, it is likely to retain a hawkish stance through the end of 2025 to ensure that disinflation progresses. A majority of our panelists see room for slight rate cuts, while others expect further hikes. Softer-than-expected economic activity poses a downside risk to rates, while commodity prices, exchange rate dynamics, and heightened uncertainty stemming from U.S. trade policy remain key factors to watch. The BCU is scheduled to reconvene on 1 July.
Panelist insight: Commenting on the outlook, BBVA analysts stated:
“Despite easing pressures, the Central Bank will maintain a contractionary stance. The policy rate is expected to remain stable—or slightly increase—through mid-2026. This implies a positive real interest rate, well above the neutral rate, reflecting the Central Bank’s intent to anchor expectations, especially ahead of the July start of the 11th round of wage bargaining.”