Uruguay Lifts Key Rate to 6.5%, Signals More Increases to Come

(Bloomberg) -- Uruguay's central bank turned more hawkish in its first policy meeting of 2022 as it raised its benchmark interest rate 75 basis points with inflation entrenched around 8%.

The bank lifted its key rate to 6.5% from 5.75% following a 50 basis-point increase in November. The central bank led by former Banco Santander SA executive Diego Labat has tightened monetary policy by 2 percentage points since it started to withdraw stimulus in August.

Policy makers expect to tighten by a similar magnitude in each of their next two policy meetings in February and April with a view to reach a neutral level of interest rates early in the second quarter, the central bank said in a statement.

Latin America suffered some of the highest inflation rates in the world for much of 2021 due to a surge in food and energy prices. Uruguay's inflation accelerated to a nine-month high of 7.96% in December from 7.86% the previous month on rising transportation, restaurant and hotel prices. 

The central bank said it “will continue with the gradual increase” in rates “to achieve the convergence of inflation expectations” with its 3% to 6% target. Economists surveyed by the central bank see inflation at 6.55% in late 2023.

The economy is expected to benefit from the reopening of borders and the recovery of the tourism industry during the first quarter of 2022, it said.  

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