Uruguay’s central bank kept its benchmark interest rate unchanged at 11.25%, saying that monetary policy remains contractive with inflation and inflation expectations above target.
Tuesday’s rate decision came a month after Uruguay became the first inflation-targeting country in South America to start lowering borrowing costs with a 25-basis-point cut. The central bank said it remains focused on inflation expectations that are still outside its 3%-6% target.
“The risk remains that the current levels of expectations materialize through existing indexation mechanisms in the formation of prices and salaries,” policymakers said in a statement.
In its most recent quarterly monetary report, the central bank flagged a gradual drop in its key rate this year, with the pace of easing expected to accelerate in 2024.
Uruguay and Costa Rica have cut interest rates since mid-March thanks to a moderation in consumer price gains earlier in 2023. Larger economies in the region such as Chile, Colombia and Brazil are forecast to start easing monetary policy later in the year due to slowing economic growth and inflation.
Headline inflation in Uruguay accelerated to 7.61% last month from 7.33% in March due to higher fresh fruit and vegetable prices.
While the economy probably expanded in the first quarter of 2023, the central bank warned that a deep drought will affect second-quarter activity. Uruguay entered a technical recession in late 2022.
