Uruguay’s Central Bank Increases Interest Rate to 8.75% to Stabilize Inflation
Uruguay’s Central Bank raised the TPM benchmark interest rate to 8.75% to align inflation and expectations with a target of 4.5%. Year-on-year inflation was reported at 5.03% in November, as core inflation increased. The economy is projected to grow by 3.1% in 2024, with inflation expectations for the year at 5.37%.
On Monday, Uruguay’s Central Bank (BCU) announced an increase in its TPM benchmark interest rate from 8.5% to 8.75%. This decision was taken in an effort to align inflation and expectations with an annual target of 4.5% over the past 24 months. This represents the first adjustment since April, when rates were reduced from 9%. According to the Committee, year-on-year inflation was recorded at 5.03% in November, marking a year and a half of stability within the inflation targeting framework, the longest period since its implementation. However, core inflation has risen for the second consecutive month, surpassing headline inflation, primarily due to an uptick in tradable inflation.
The BCU noted a decline in two-year average expectations to 5.83% in November, followed by a slight rise to 5.89% in December among analysts. The international environment has shown signs of deterioration, especially concerning activity in advanced economies, along with persistent inflation in core components. The U.S. Federal Reserve has also lowered interest rates for the third consecutive meeting, prompting markets to anticipate a moderated pace of future cuts.
In terms of economic growth, Uruguay’s GDP increased by 4.1% year-on-year in the third quarter, with a projected growth of approximately 3.4% for 2024. The BCU’s Expectations Survey indicated a forecast for 2024 GDP growth of 3.1%, reflecting a modest upgrade from a previous projection of 3%. Estimates from economists ranged widely, with predictions for GDP expansion varying from 2.9% to 3.53%. Additionally, the BCU anticipates inflation in 2024 to average 5.37% following December’s rate of 0.2%.
The Central Bank of Uruguay plays a crucial role in managing the country’s monetary policy and inflation expectations. In the context of fluctuating economic conditions, adjustments to the benchmark interest rate are employed to control inflation and influence economic activity. The recent decision to raise the interest rate reflects an ongoing effort to stabilize inflation while adjusting to international economic pressures and domestic growth performance, which has shown a positive trend despite challenges.
In summary, the Central Bank of Uruguay’s decision to increase the TPM benchmark interest rate to 8.75% marks a strategic move to stabilize inflation at targeted levels. While the economy shows positive growth indicators, with GDP increasing by 4.1%, the persistence of core inflation presents challenges. The outlook for the Argentine economy reflects careful monitoring of both domestic and international economic landscapes, as projections for 2024 indicate continued growth despite high inflation expectations.
Original Source: en.mercopress.com
