Uruguay central bank chief sees data driving future rate moves
\nWashington
\nThe central bank that led South America in lowering interest rates this year might become the first to halt the cuts as it seeks to lower Uruguay\u2019s above-target inflation expectations.
\nThe central bank flagged in its Thursday policy meeting that its current easing cycle might be nearing an end after lowering the key rate by 200 basis points to 9.5% since April. The monetary authority also lifted its two-year rate forecast by around 100 basis points to roughly 9% in 2025.
\nMonetary policy will stay contractive to lower sticky inflation expectations and keep a lid on consumer prices, chairman Diego Labat said in an interview in Montevideo.
\n\u201cWe are approaching what we understand is the rate path we are going to have for the next 24 months under current conditions,\u201d he said.
\nLabat left the door open for more rate cuts if inflation remains within the 3% to 6% target and expectations continue converging with that range. A deterioration in those indicators would spur policymakers to hike rates, he said.
\n\u201cThis central bank is committed to reacting if there is any deviation from our objectives,\u201d Labat said.
\nUruguay\u2019s peers are still in full easing mode with Chile, Brazil, Peru and Paraguay expected to keep lowering borrowing costs this year as inflation recedes. Colombia is widely tipped to join South America\u2019s rate cutting club in the coming months.
\nThe central bank under Labat readopted a benchmark interest rate as its main policy tool in September 2020 after years of failing to contain inflation by using monetary aggregates. Maintaining a contractive policy stance also aims to strengthen the credibility of Uruguay\u2019s relatively young inflation targeting regime, he said.
\nRead more: Global Central Banks Aren\u2019t Declaring Victory Over Inflation Yet
\nLabat\u2019s concerns aren\u2019t misplaced if history is any guide. Uruguay lived with average annual consumer price gains of almost 8% the last 20 years thanks to inflation protection mechanisms baked into contacts and wage agreements. Brief periods of relatively low \u2014 by local standards \u2014 inflation were followed by price surges that occasionally topped 10%.
\nThe inflation rate has tumbled since late 2022 in the face of high rates, a strong currency that makes imports cheaper and lower commodities prices.
\nConsumer prices increases in September hit the slowest pace in 18 years at 3.87%, notching a fourth straight month within the target range. Even so, the central bank sees inflation accelerating to about 5% in December and reaching 5.7% in late 2025. The inflation outlook has steadily cooled in central bank surveys, but is still higher than 6%.
\n\u201cUruguay has a lot of room for lower inflation and therefore lower rates. I can\u2019t imagine high rates forever,\u201d Labat said.<\/p>\n","protected":false},"excerpt":{"rendered":"
Uruguay central bank chief sees data driving future rate moves Washington The central bank that led South America in lowering interest rates this year might become the first to halt the cuts as it seeks to lower Uruguay\u2019s above-target inflation expectations. The central bank flagged in its Thursday policy meeting that its current easing cycle […]<\/p>\n","protected":false},"author":2,"featured_media":360287,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"class_list":{"0":"post-360275","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business"},"yoast_head":"\n