Uruguay’s central bank plans to continue cutting interest rates next year to get consistently low inflation up to its 4.5% target by accelerating growth and weakening the currency, Chairman Guillermo Tolosa told reporters in Montevideo on Friday.
Consumer prices are expected to continue slowing for months due to the appreciation of the peso against the dollar and weaker-than-expected growth, Tolosa said. Below-target inflation hurts the creditability of monetary policy, he added.
“Current macroeconomic conditions and our inflation projections indicate that it is now appropriate to move towards an expansionary stance,” said Tolosa, noting that further easing depends on inflation expectations remaining anchored.
Uruguay’s monetary authority plans to adopt a lower inflation target, but not in the short term, Tolosa said.
The central bank surprised investors with a 50 basis point cut on December 23 that left the benchmark interest rate at 7.5%. Once a high inflation outlier in the region, Uruguay is enjoying a rare period of low consumer price increases. Inflation, which marked four consecutive months below the 4.5% target in November, has remained within the central bank’s 3-6% tolerance range for two and a half years.
Finance Minister Gabriel Oddone said in a radio interview this week that the government is concerned about the loss of economic competitiveness and undershooting of the inflation target due to the appreciation of the peso. The currency has gained more than 12% against the dollar this year, according to data compiled by Bloomberg.
Analysts surveyed this month by the central bank trimmed their outlook for growth this year and next to 2.1% and 1.9%, respectively. The government predicts 2.3% growth this year and 2.4% in 2026. The central bank doesn’t expect the economy to suffer a recession in the near term, Tolosa said.
The monetary authority isn’t seeking a specific exchange rate level by lowering interest rates, Tolosa said.
“The central bank doesn’t have an explicit exchange rate goal,” he said, though “exchange rate appreciation is working against our 4.5% target.”
