Uruguay’s central bank delivered a bigger-than-expected interest rate cut after the inflation rate fell to an 18-year low in July, staying within its target range for a second consecutive month.
Policymakers lowered their benchmark rate by 75 basis points to 10% on Tuesday, following a half-point cut last month. Most economists expected the bank to continue cutting rates by 50 basis points.
“The monetary policy committee expects the reduction in year-on-year inflation will continue in the coming months” accompanied by a decline in inflation expectations, board members said in a statement that accompanied their decision. They added their monetary policy remains contractive.
Future interest rate movements will depend on consumer price data and, to a greater degree, inflation expectations, they said.
A growing number of Latin American countries including Brazil and Chile have started reducing borrowing costs as inflation cools down. Uruguay’s central bank was the first in South America to start easing monetary policy when it delivered a 25 basis-point cut in April.
Consumer prices in July rose 4.79% from a year ago, down from 5.98% the previous month. The central bank said it sees inflation staying within its 3% to 6% target for the next 24 months.
Policymakers expect growth will rebound in the third quarter after a drought affected the economy in the April-June period.
