Uruguay raises key rate to 6.5% from 5.75% as it considers further hikes in the future

RIO DE JANEIRO, BRAZIL – Uruguay’s central bank turned tighter in its first policy decision of 2022, as it raised its benchmark interest rate by 75 basis points, with inflation entrenched at around 8%.

The bank raised its key interest rate to 6.5% from 5.75%, having already increased it by 50 basis points in November. The central bank, led by Banco Santander SA chief Diego Labat, has cut monetary policy by 2 basis points since it began withdrawing stimulus in August.

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Policymakers expect to support their benchmark rate by similar amounts at each of the next two meetings in February and April to reach a neutral level at the start of the second quarter, the central bank said in a statement.

Latin America saw some of the highest inflation rates in the world for much of 2021 due to a rise in food and energy prices.

Uruguay’s inflation accelerated to a nine-month high of 7.96% in December from 7.86% the previous month due to higher prices for transportation, restaurants, and hotels.

The central bank said it would “continue with the gradual increase” of the rate “until it achieves convergence of inflation expectations” with its 3% to 6% target. Economists surveyed by the central bank expect inflation to reach 6.55% by the end of 2023.

The bank noted that the economy is expected to benefit from the reopening of borders and the tourism industry’s recovery during the first quarter of 2022.