Uruguay’s Central Bank raised its benchmark interest rate from 8.5% to 8.75% to align inflation expectations, now at 5.03%. Despite stable headline inflation, core inflation increased for the second month. The economy grew by 4.1% year-on-year in Q3 2024 with GDP growth projected at 3.4% for 2024. Inflation for next year is expected around 5.37%.
On Monday, Uruguay’s Central Bank (BCU) Monetary Policy Committee announced an increase in the benchmark interest rate, adjusting it from 8.5% to 8.75%. This decision aims to align inflation with its target of 4.5% annually over the past two years. This marks the first adjustment since April when the rate was lowered from 9%. The Committee reported that year-on-year inflation was 5.03% in November, indicating stability within target levels for the longest period since the initiation of the inflation targeting strategy. However, core inflation has risen for the second month in a row, surpassing headline inflation due to increased tradable prices.
The report detailed fluctuations in inflation expectations, noting a slight decrease to 5.83% in November, followed by an increase in the median forecast to 5.89% in December. The international economic environment presents challenges, with a slowdown in advanced economies affecting growth prospects. Concurrently, inflation remains persistent, particularly in the core sectors. The BCU also referenced the United States Federal Reserve’s decision to lower interest rates for the third consecutive meeting, anticipating a more gradual reduction moving forward.
Uruguay’s economy displayed robust growth, with a year-on-year GDP increase of 4.1% in the third quarter, and projections suggest a growth rate of approximately 3.4% for 2024. The Monthly Expectations Survey indicated that GDP growth for the upcoming year may reach 3.1%, a slight improvement from previous estimates. Analysts’ predictions for GDP growth in 2025 stand at 2.5%, with inflation anticipated at 5.37% for 2024 following a modest 0.2% in December. Overall, the BCU remains optimistic about the effectiveness of its monetary policy transmission channels.
The Central Bank of Uruguay (BCU) operates under a monetary policy framework aimed at managing inflation through designated target rates. The interest rate, known as the TPM (Tasa de Política Monetaria), is a critical tool used to influence economic activity and control inflation levels. The BCU utilizes various data and forecasts regarding inflation, GDP growth, and broader economic conditions, both domestically and internationally, to inform its policy decisions. Adjustments to the TPM are indicative of the central bank’s strategy to stabilize the economy in response to emerging challenges.
In summary, the BCU’s recent decision to raise the benchmark interest rate reflects a proactive approach to managing inflation and sustaining economic growth in Uruguay. With inflation pressures noted in core sectors and an optimistic GDP growth forecast, the monetary policy committee remains vigilant in adapting to both domestic and global economic changes. The ongoing assessment of inflation expectations and macroeconomic indicators will continue to guide the BCU’s strategic focus in the upcoming periods.
Original Source: en.mercopress.com
