- Decision
- Lower
- Rate change
- 100 bps
- monetary policy rate
- 6.5%
The Board of the Central Bank of Uruguay (BCU) cut the policy rate by 100 bp to 6.5 percent, moving policy into an “expansionary” stance to counter a projected undershooting of the 4.5 percent inflation target after year-end 2025 inflation fell to 3.65 percent and two-year inflation expectations eased to 4.45 percent for analysts, 4.6 percent for financial markets and 5.3 percent for firms. After lifting the rate to 9.25 percent in April 2025, the BCU has now lowered it by a cumulative 275 bp through successive moves in July, August, October, November, December and the latest January decision. The bank flagged recent episodes of thin liquidity and one-sided FX order flows that have amplified the regional slide in the USD and could jeopardise the 3–6 percent tolerance band, but judged that a sharper, earlier rate cut was needed to reinforce inflation’s convergence to target. It warned that further “exceptional situations” in the local market would be met with appropriate instruments to maintain orderly conditions and price stability, and it has called an additional Monetary Policy Committee meeting for March to retain flexibility to extend the easing bias if warranted.
Rate evolution
From May 2025 to July 2026, the Central Bank of Uruguay lowered the Monetary Policy Rate by 350 basis points, from 9.25% to 5.75%, moving from a firmly contractionary stance through successive cuts toward neutrality, briefly into an expansionary phase, and then pausing. Early on, it held to reinforce disinflation despite elevated core inflation and expectations still above the 4.5% target, then began easing as headline and underlying inflation moved to around target, expectations fell to record lows and policy credibility strengthened, even while non-tradable prices remained sticky and activity softened or grew around potential. As inflation slipped below target, forecasts were revised down and activity underperformed, the bank accelerated the easing cycle in December 2025 and January 2026, citing weaker domestic import prices, downside growth risks, deeper international policy uncertainty, global USD weakness and episodes of domestic foreign-exchange-market stress, and explicitly said policy had reached neutrality and then become expansionary.
In subsequent decisions, it held at 5.75% as inflation stayed low and expectations remained anchored, but in May 2026 stressed elevated global uncertainty from the Middle East conflict, volatile currencies and commodities, higher oil and logistics costs, rising long-term interest rates and a domestic recovery in activity and employment, judging that inflation risks had tilted slightly upward and signalling it would act if conditions required. On July 1, 2026, the Central Bank of Uruguay again kept the Monetary Policy Rate at 5.75%, saying inflation remained on a path toward the 4.5% target and expectations stayed aligned, while finding no significant second-round effects and judging risks balanced despite upside risks from the international conflict and El Niño-related climate effects and downside risks from further global USD weakness and a sharper slowdown in commodity prices. In the subsequent decision, it unanimously held the rate at 5.75% after annual inflation reached 4.27% in July and underlying inflation rose moderately without second-round effects, noting that some persistent services prices remained elevated, two-year expectations stood at 4.5% among analysts and financial markets and 5% among firms, activity was below potential and the labour market was relatively stable, while geopolitical, commodity-price and adverse climate risks continued to warrant monitoring.