Uruguayan Central Bank raises interest rate to 10.25%

On August 15, the Central Bank of Uruguay (BCU) raised the monetary policy rate (TPM) by 50 basis points to 10.25%, deepening a contractionary phase in the face of persistent inflationary pressures.

“The decision of the Monetary Policy Committee (COPOM) deepens the contractionary phase of monetary policy after assessing that the rigidity of agents’ inflation expectations persists,” states the BCU.

At the same time, “inflation and core inflation remain outside the target range,” referring to the range between 3% and 7%, which will even drop to 6% as of September.

“In Uruguay, economic activity continued its recovery in the second quarter, which is being maintained in the third quarter, although at a somewhat more moderate pace,” the BCU statement said.

The COPOM “positively values the monetary policy transmission channels that are working as expected, and understands that the referred increase in the TPM is necessary and timely”.

At the same time, it anticipates that it will continue “with similar increases in the next meetings, considering that this would lead to rate levels consistent with the convergence of expectations towards the target range by the end of the year”.

“However, it reaffirms its commitment to deepen the contractionary stance of the policy if expectations remain rigidly downward,” it concludes.

Inflation in Uruguay rose to 9.56% in the mobile year ending in July, above June’s record (9.29%) and the highest level so far in 2022, according to the latest official figures available.

The government of President Luis Lacalle Pou expects this year’s Gross Domestic Product (GDP) growth of 4.8% after registering a 4.4% rise in 2021.

With information from Xinhua

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