Uruguay’s Central Bank Cuts Rate to 7.5% as Inflation Remains Below Target

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Uruguay’s central bank unexpectedly cut its key interest rate by 50 basis points to 7.5%, Bloomberg reports. In recent months, consumer price growth has consistently remained below the target level. The regulator said that inflation undershooting the target poses a separate challenge for monetary policy and shifts the balance of risks. At the same time, the country’s economy is developing weaker than expected.

Uruguay has recorded inflation within the central bank’s target corridor of 3–6% for about two and a half years. Over the past four months, the indicator has consistently remained below the 4.5% target level. In November, annual inflation slowed to 4.09%, confirming easing price pressures.

The current dynamics in Uruguay stand out even against its own macroeconomic history. Consumer prices have remained within the target range for about 31 consecutive months — the longest period of sustained price stability in more than two decades. For a region traditionally prone to inflationary spikes, such dynamics are considered rare. This factor allows the Uruguayan regulator to act with greater confidence and move away from tight policy without fearing a sharp reversal in expectations.

The rate cut marked the fifth consecutive reduction since July 2025. Over this period, borrowing costs in the economy have fallen by a cumulative 175 basis points. The December decision proved more aggressive than the market expected: financial institutions surveyed by the central bank had anticipated a cut of only 25 basis points.

In its statement, the regulator noted that following the latest step, monetary policy has moved into a neutral stance. Inflation continues to follow the expected trajectory, however its persistent deviation below the target level requires heightened attention. If current trends persist, the interest rate policy could shift toward a more expansionary phase, consistent with the objective of price stability.



Inflation expectations are also continuing to decline. According to the central bank’s latest monthly survey of analysts, consumer price growth next year is forecast at 4.52%, down from 4.65% a month earlier. A business survey conducted by the national statistics agency INE shows inflation expectations at 5% over the 12-month period through October 2026.

Against the backdrop of disinflation, economic activity is developing weaker than forecast. The central bank pointed to downside risks to growth, reinforcing arguments in favor of a more accommodative monetary policy. Analysts have already revised macroeconomic expectations: Uruguay’s GDP growth is estimated at 2.1% this year and 1.9% in 2026.

Central bank governor Guillermo Tolosa has previously indicated that if the current inflation trajectory is maintained, the central bank is ready to continue cutting the key rate in 2026. In his view, keeping inflation below the target for too long also carries risks, as it may restrain investment activity and weaken domestic demand. As a result, the regulator views further easing not as an emergency measure but as a tool for fine-tuning the economy under conditions of price stability.

The next monetary policy meeting is scheduled for February 12. It will be the regulator’s first meeting of the new year and may provide the market with additional signals regarding the future direction of the rate path. In a regional context, the decisions of Uruguay’s central bank look atypical. In most Latin American countries, regulators by the end of 2025 preferred to maintain caution: rate cuts either slowed or were put on hold due to persistent inflation risks, currency pressure, and external uncertainty. Uruguay has emerged as one of the few economies in the region where the combination of sustainably low inflation and weaker economic growth has made it possible to move toward more active policy easing without risking a loss of control over price dynamics.

Analysts at International Investment note that the decision to cut the rate to 7.5% appears to be a logical continuation of a policy adapted to the new macroeconomic reality. Persistently low inflation gives Uruguay’s regulator room to maneuver, while slowing growth calls for softer financial conditions. The ultimate direction of policy will depend on whether the central bank can maintain a balance between supporting the economy and keeping inflation close to the target.