MONTEVIDEO: Uruguay’s central bank surprised markets with a quarter-point interest rate hike on Monday, citing an uptick in underlying inflation and long-term inflation expectations.
Uruguay’s first interest rate increase in two years lifted the benchmark rate to 8.75%, surprising all five analysts surveyed by Bloomberg, who expected the bank to remain on hold for an eighth straight month at 8.5%.
A deteriorating international scenario and financial market uncertainty that is affecting inflation expectations led the board of directors to unanimously approve the rate increase, the central bank said in a statement.
Uruguay joins neighbouring Brazil in adopting a tighter monetary policy stance though the former’s 100 basis-point hike earlier this month was aimed at stopping a run on the Brazilian real.
Elsewhere in the region, Colombia and Mexico are still lowering borrowing costs, while Chile has signalled it might pause further rate cuts due to above target inflation.
Paraguay has held its key rate steady at 6% since April thanks to tame consumer prices.
Uruguay’s consumer price index rose 5.03% in November, marking an unprecedented 18 consecutive months in the target range. The central bank forecasts that it will hit 5.2% at the end of 2025. — Bloomberg
