Uruguay Monetary Policy December 2022

At its 30 December meeting, the Monetary Policy Committee of the Central Bank of Uruguay (BCU) increased the policy rate from 11.25% to 11.50%. The move marked the 12th consecutive hike and took total tightening since the start of the hiking cycle in August 2021 to 700 basis points.

Commenting on the decision, the Bank noted that inflation declined to 8.5% in November, which—albeit still above the 3.0–6.0% target range—was lower than expected by the Committee. Moreover, the BCU highlighted that inflation expectations over the two-year policy horizon eased to 6.8% in December from November’s 7.0%. Meanwhile, the Bank commented that the international landscape was favorable. Easing commodity prices bode well for imported inflation. Healthy activity in the EU, a positive outlook in China, and smaller interest rate increases by the Federal Reserve should buttress external demand and lessen pressure on the currency. Altogether, these developments led the BCU to slow its hiking pace from 50 basis point to 25 basis point hikes.

The Bank’s forward guidance became significantly less hawkish; It does not foresee any additional interest rate hikes. That said, it stated that it would continue to monitor domestic and international economic conditions to ensure that inflation and inflation expectations converge to the target range. The next monetary policy meeting is scheduled for 15 February.

FocusEconomics panelists see the monetary policy rate ending 2023 at 9.85% and 2024 at 8.20%.