Tuesday, October 5, 2021

Uruguay raises rate 2nd time, expects further hikes

    Uruguay's central bank raised its key interest rate for the second consecutive month and said it expects to "continue with the gradual exit from the most expansive phase of monetary policy" for the remainder of 2021, taking into account the reaction of inflation expectations and the country's health and economic situation.
    The Central Bank of Uruguay raised its monetary policy rate by 25 basis points to 5.25 percent and has now raised it by 75 points this year following a 50-point hike in August.
     It is the central bank's second rate hike since September last year when it adopted the current monetary policy framework, including the policy rate, instead of targeting money supply to control inflation, which has plagued the country for decades.
     As in August, the central bank said the priority of monetary policy is to drive inflation expectations to the center of its target range of 3.0 to 6.0 percent.
     After decelerating in the first four months of the year, Uruguay's inflation rate has stabilized in the last four months and eased to 7.41 percent in September from 7.59 percent in August.
     Despite the decline, the central bank said inflation was above the upper limit of its target range and core inflation remains around 8 percent. 
      While inflation expectations are converging toward the target, they remain out of range, the bank said, adding expectations 24 months ahead have eased to 6.9 percent.
      In the second quarter of this year, Uruguay's economy grew an annual 11.3 percent after contracting for six consecutive quarters and the central bank said data shows this growth trend continued in the third quarter, in line with its latest forecast for 3.5 percent expansion this year.



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