Uruguay: Central Bank cuts policy rate to a four-year low in March
Central Bank cuts again: At its meeting on 3 March, the Central Bank of Uruguay (BCU) decided to reduce its policy rate by 75 basis points to 5.75%. This marked the seventh consecutive reduction, bringing interest rates to their lowest since January 2022.
Disinflation amid peso appreciation drives the cut: A key factor in the decision was the recent downtrend in inflation, which has laid below the 4.5% midpoint of the BCU’s target range for the past seven months and which closed last year below market expectations and the BCU’s projections. This is partly due to the recent appreciation of the Uruguayan peso against the U.S. dollar, which has lowered import costs. Additionally, the committee further noted that recent economic activity indicators have been weaker than anticipated, suggesting the need for accommodative monetary policy to support economic growth in 2026.
Policy outlook: The BCU did not provide explicit forward guidance on future monetary policy decisions, but said they would depend in part on the effects and length of the Iran war, which could stoke energy and import prices. Our panel is currently redrawing its forecasts in light of the March decision and the uncertainty surrounding the ongoing conflict in Iran. The BCU is scheduled to reconvene in April.