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 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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