Economy & Business - May 2023

URUGUAY | Leading the way on lower interest rates. On 19 April, the monetary policy committee of Uruguay’s central bank (BCU) surprised market analysts by cutting the benchmark interest rate by 0.25 percentage points to 11.25%. The BCU’s decision stands out in a global environment favouring monetary tightening as inflation remains high worldwide. The US Federal Reserve increased rates to a 16-year high at its last meeting while the central bank in Brazil, which has some of the highest real interest rates in the world, has remained hawkish. The BCU’s monetary policy committee, meanwhile, justified its decision by citing a slowdown in inflation over the past six months, and indications that this trend will continue, amid signs of meagre growth. In a meeting with global investors and analysts shortly after the bank’s interest rate cut, BCU president Diego Labat stressed that the lowering of interest rates “will be as slow as necessary, always with care for the credibility of the regime of inflation objectives and looking for the convergence of inflation and its forecasts to the target range”. Annual inflation in March, the latest data available at the time of the rate cut, was running at 7.33%, although it has since risen to 7.61% in April. The BCU currently expects year-end inflation to come in at 6.85%, outside of its 3%-6% target range.

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