MercoPress. South Atlantic News Agency

Uruguay's BCU ups basic interest rate

Uruguay's core inflation was above target for two months in a row, the BCU warned

Uruguay's Central Bank (BCU) Monetary Policy Committee decided Monday to raise the TPM benchmark interest rate from 8.5% to 8.75% in a move to make inflation and expectations “meet” at 4.5% annually over the last 24 months. It was the first twitch to the TPM since April when it was cut from from 9%.

“Year-on-year inflation stood at 5.03% in November and thus completed a year and a half within the range, the longest period since the implementation of the inflation targeting regime,” the Committee said in a statement. “However, core inflation registered an increase for the second consecutive month and was above 'headline' inflation, driven by an increase in tradable inflation,” it added.

“in November, the average two-year expectations had a decrease to 5.83”, but “in December there was a slight increase of 9 basis points in the median of analysts, which stands at 5.89,” the document went on. “The international scenario shows a deterioration in the outlook for activity, due to the lower growth of advanced economies, and inflation maintains its persistence in the core component,” it further noted.

This month, the US ”Federal Reserve (FED) reduced the interest rate for the third consecutive meeting and, from now on, the market expects a slower pace of cuts,” the Uruguayan entity also pointed out.

Meanwhile, Uruguay's Gross Domestic Product (GDP) grew by 4.1% year-on-year in the third quarter of the year, while average annual growth is expected to be around 3.4% for 2024.

”Based on the analysis of these data and projections, the Monetary Policy Committee (Copom) maintained its positive assessment of the functioning of the monetary policy transmission channels,” the document also stated.

In addition, Uruguay's economy is forecast to grow by 3.1% in 2024, a slight improvement from November's 3%, the BCU's Expectations Survey released Monday in Montevideo noted. The survey among economists and financial sector institutions gathered responses ranging from a Gross Domestic Product (GDP) expansion of 2.9% to 3.53%.

Uruguay's economy expanded by 4.1% year-on-year in the third quarter of 2024 and totals 2.9% so far this year, according to the latest official BCU report. For 2025, analysts expect an expansion of 2.5%. Inflation in 2024 is expected to stand at 5.37% after December's 0.2%, the BCU study found.