Uruguay: Central Bank cuts policy rate to a four-year low in January
Central Bank cuts again: At its meeting on 26 January, the Central Bank of Uruguay (BCU) decided to reduce its policy rate by 100 basis points to 6.50%. This marks the sixth consecutive reduction, bringing interest rates to their lowest since January 2022. The meeting surprised investors, with the BCU bringing forward its meeting from its original 12 February date.
Peso’s appreciation drives early cut: The BCU said it brought forward its meeting in response to the recent appreciation of the Uruguayan peso, which has made imports cheaper and which in turn could lead inflation to slip below the Bank’s 3.0–6.0% tolerance band.
This comes after inflation closed 2025 below market expectations and the BCU’s projections. Moreover, the two-year-ahead inflation expectations have continued to decline among analysts, financial markets and companies, further pushing the BCU to cut interest rates.
Policy outlook: The BCU did not provide explicit forward guidance on future interest rate movements. Our panelists are currently reevaluating their forecasts in light of the January decision; interest rate decisions will be closely tied to evolving domestic and international economic conditions. A further decline in inflation and inflation expectations, plus a stronger-than-expected peso, could prompt easing in interest rates.
The Bank is scheduled to reconvene in March.