Uruguay’s Central Bank Takes Action to Tackle Inflation
Uruguay’s Central Bank (BCU) recently made a significant decision to raise the benchmark interest rate in an effort to combat inflation and align expectations with the target of 4.5% annually over the past two years. This move marks the first adjustment to the interest rate since April, when it was reduced from 9% to 8.5%.
The BCU’s Monetary Policy Committee emphasized that core inflation in Uruguay had exceeded the target for two consecutive months. This trend was driven by an uptick in tradable inflation, causing concerns about the overall inflation outlook in the country.
Key Points to Note:
- Year-on-year inflation reached 5.03% in November, marking the longest period within the target range under the inflation targeting regime.
- Core inflation saw a consecutive increase for the second month, surpassing the headline inflation rate.
- Despite a slight decrease in two-year inflation expectations to 5.83% in November, there was a subsequent increase to 5.89% in December.
- The international economic landscape, characterized by muted growth in advanced economies and persisting core inflation, poses challenges for Uruguay’s economic outlook.
The BCU also highlighted the recent actions of the US Federal Reserve, which reduced interest rates at its latest meeting, suggesting a slower pace of cuts in the future. This development adds to the complex global economic dynamics impacting Uruguay’s monetary policy decisions.
Looking at Uruguay’s economic performance:
- GDP grew by 4.1% year-on-year in the third quarter of 2024, with an average annual growth rate of 3.4% projected for the year.
- The Monetary Policy Committee affirmed a positive assessment of the monetary policy transmission channels based on current data and projections.
- Economic forecasts for 2024 indicate a growth rate of 3.1%, slightly higher than previous estimates, reflecting a positive trajectory for the country’s economy.
In conclusion, Uruguay’s economic landscape presents a mix of challenges and opportunities, with inflationary pressures requiring targeted interventions to maintain stability. The BCU’s proactive approach to adjusting interest rates underscores its commitment to ensuring a balanced and sustainable economic environment for the country. Stay informed and engaged with the evolving economic developments to navigate the changing financial landscape effectively.
