Uruguay raises rate 4th time, sees 2 more rate hikes

      Uruguay's central bank raised its interest rate for the fourth time since August 2020 and said it expects to raise the rate by the same amount at the next two monetary policy meetings, which means the interest rate would reach a neutral level at the beginning of the second quarter.

     The Central Bank of Uruguay (CBU) raised its reference rate by 75 basis points to 6.50 percent and has now raised it by 2.0 percentage points since it began what it said was an exit from "the most expansive phase of monetary policy" by raising its rate in August last year.
     The August rate hike was then followed up with rate hikes in October, November and today.

     The bank's board next two meetings are scheduled for Feb. 16 and April 8.

     CBU's board said inflation expectations rose for the second consecutive month and to ensure expectations converge to its target, it would continue with the gradual increase in interest rates until expectations return to its target.

     Inflation in Uruguay rose to 7.96 percent in December, the highest rate since March, from 7.86 percent in November and CBU said expectations two years ahead were now at 6.55 percent, with expectations by businesses at 8.0 percent while financial markets priced in inflation of 7.21 percent.

     Uruguay's central bank targets inflation in a range of 3.0 to 6.0 percent.

     The central bank added growth in the domestic economy accelerated and this is expected to continue in coming moths with the economic recovery continuing in the first quarter of 2022, driven partly by the opening of international borders and the recovery of tourism.

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Uruguay becomes 22nd central bank to raise rates

     Uruguay's central bank raised its key interest rate to ensure inflation expectations are in line with its target range and said future changes in the monetary policy stance would depend on how inflation expectations react to this change move along with the country's economy and the population's health.

      The Central Bank of Uruguay raised its monetary policy rate by 50 basis points to 5.0 percent, the first change in its rate since September last year when it adopted a policy rate and abandoned targeting money supply to control inflation that has plagued the country for decades.

      Uruguay becomes the 22nd central bank that has raised its key interest rates this year in response to growing inflationary pressures and the fourth central bank in Latin America after Brazil, Chile and Mexico.

      The rate hike follows months of warnings by the central bank about the need to raise rates to control inflation once the economy begins to recover from the COVID-19 pandemic, which led to a 5.9 percent contraction in the country's gross domestic product last year.

      At its previous meeting on July 6, for example, the bank's monetary policy committee (Copom) said it was still waiting for more signs on a recovery of economic activity but once this starts, interest rates will be raised gradually to affect inflation expectations.

      Today, Copom said the health situation in Uruguay had improved "substantially," and economic activity is showing signs of recovery, with progress in various sectors and unemployment is falling.

      "Within this framework, the Committee understands it is necessary for monetary policy to begin to leave its most expansive phase in order to follow a gradual path of adjustment of the interest rate and, therefore, to increase the monetary policy rate to 5%," the central bank said.

      As long as there are no setbacks in the health situation, the priority of monetary policy will be to drive inflation expectations to the center of the target range of 3.0 to 6.0 percent, the bank added.

     Inflation in Uruguay has been declining steadily in recent months to 7.3 percent in June and July from over 9 percent in February but remains above the central bank's target range.

      In its second quarter monetary policy report from last month, the central bank forecast inflation would average over 7 percent this year due to higher fuel costs and commodities but then return to its target in the second quarter of 2022.

      After last year's economic contraction, the central bank expects the economy to expand 3.5 percent on average the year,  with growth slowing somewhat in 2022.

      In the first quarter of this year Uruguay's GDP shrank 2.8 percent year-on-year, the sixth consecutive quarter of contraction on an annual basis.

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Uruguay holds rate, warns of inflation and expectations

    Uruguay's central bank held its policy rate steady at 9.25 percent although the bank said the actual inflation rate and inflationary expectations were well above the bank's target range.
    However, considering the need to balance economic policy objectives and the recent rise in marginal reserve requirements, the bank's monetary policy committee said it decided to maintain the policy rate.
     The central bank of Uruguay, which raised its policy rate by 50 basis points in 2012, is raising marginal reserve requirements on local and foreign currency deposits from April 1 to slow down credit growth and inflation.
    The reserve requirement for deposits in Uruguayan peso will rise to 25 percent from 20 percent while the requirement on foreign currency deposits will rise to 45 percent from 40 percent.
    Uruguay's inflation rate rose to 8.89 percent  in February from 8.72 percent in January, significantly above the central bank's target of 4-6 percent.

    In December, Banco Central del Uruguay (BCU) also said inflation and inflationary expectations were well above its target.

Uruguay raises rate for 2nd time, inflation rises further

    Uruguay's central bank raised its policy rate by another 25 basis points to 9.25 percent in an attempt to rein in inflation and keep inflationary expectations in check.
     Banco Central del Uruguay (BCU), which also raised rates at its previous meeting in September, said the country's economy was continuing to grow at a reasonable pace, propelled by higher exports and services, rising private investment and strong domestic demand.
    But inflation is the central risk facing Uruguay's economy and "both the actual inflation rate as well as agents' expectations remain well above the target range," BCU said in statement.
    Uruguay's Gross Domestic Product rose by 1.2 percent in the third quarter from the second for annual growth of 3 percent, down from a second quarter rate of 3.8 percent.
     The inflation rate in October rose to a new high for the year at 9.1 percent compared with September's 8.6 percent, well above the central bank's 4-6 percent target range.
    The bank has now raised rates by a total of 50 basis points this year.
    BCU said the global economic context still looks weak and uncertain and it expects international interest rates to remain "extremely low for the policy horizon with predictable consequences for capital flows."

Uruguay raises rate 25 bps, worried over inflation threat

    The central bank of Uruguay raised its monetary policy rate by 25 basis points to 9.00 percent, concerned that actual inflation and inflationary expectations were well above the bank's target range.
    The uncertain global economy and worrying economic and financial situation in several European countries implies that international interest rates will remain extremely low for a considerable period, Banco Central del Uruguay (BCU) said in a statement following a meeting of its Monetary Policy Committee.
    Investors will therefore continue to move towards reserve currencies for safe haven and also seek  profit by investing in the securities of emerging markets. Commodity prices have also risen recently but the recent slowdown in the economic growth of emerging markets cannot offset the inflationary pressures of higher food, minerals and energy prices, the bank added.
    At the same time, the bank said Uruguay's economy continues to grow at reasonable rates, especially considering the international slowdown, and it is "necessary to avoid a situation in which inflation threatens an otherwise healthy economy."