Uruguay’s Central Bank Raises Interest Rate to 9% to Tackle Inflation Risks

The Central Bank of Uruguay (BCU) raised its benchmark interest rate by 25 basis points to 9%, aiming to align inflation and expectations with its 4.5% annual target over the next 24 months.

This decision underscores the bank’s focus on maintaining price stability amid global and domestic economic challenges. Uruguay’s inflation rate reached 5.05% in January 2025, staying within the BCU’s target range of 3%–6% for the 20th consecutive month.

However, inflation expectations remain above this range, with businesses forecasting 6.5% and financial markets predicting 6.1%. These figures highlight lingering concerns despite recent stability. The BCU projects a slight inflation increase in February and March before stabilizing later in the year.

Economic growth offers a mixed backdrop for this policy move. Uruguay’s GDP grew by 4.1% year-on-year in the third quarter of 2024, driven by recovering exports and private consumption after a drought-induced slowdown.

Growth for 2025 is expected to moderate to around 3%, supported by domestic demand and improved external conditions. Global factors add complexity to the BCU’s task.

Persistent inflation in advanced economies and slowing growth in emerging markets could impact Uruguay through trade and financial channels. Domestically, rising costs for food, housing, and transportation—key components of the Consumer Price Index—continue to pressure prices.

The rate hike reflects the BCU’s commitment to controlling inflation while balancing economic growth. Businesses face higher borrowing costs but benefit from a stable macroeconomic environment. Investors and policymakers will closely watch how these measures influence Uruguay’s economic trajectory amid global uncertainties.

This decision highlights the BCU’s proactive approach to safeguarding price stability while navigating external risks, reinforcing its credibility as it works toward sustainable growth and inflation convergence.

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