The cut makes Uruguay something of an outlier in Latin America, where major central banks have continued to hike interest rates or keep them high this year, despite signs that inflation is gradually slowing. Analysts are not expecting cuts in most major economies in the region until later this year. Uruguay's monetary authority noted that the rate of rising consumer prices over the past year through March stood at 7.33%, which it said confirmed a deceleration that began last October. Core inflation, which strips out some volatile energy and food prices, slowed at an even faster clip over the same period, the bank said, to reach 6.16%, or its lowest level in five years. Analysts at J.P Morgan however pointed to the country's dampening economic forecasts as another motivator behind the cut. "Despite still persistent inflation expectations, the central bank decided to cautiously start the easing cycle, as the impact of the drought weighs on activity," the analysts said in a note. Fitch Solutions this month downgraded their 2023 growth forecasts for Uruguay to 2.1% from 2.8%, "as a severe drought affects production in the country's export-facing agricultural sector and drives up energy imports." (Reporting by David Alire Garcia and Isabel Woodford; Editing by Sam Holmes)
Reuters Messaging: david.aliregarcia.thomsonreuters.com@reuters.net)) (Adds details, background)
April 19 (Reuters) - Uruguay's central bank cut its
benchmark interest rate by 25 basis points on Wednesday,
lowering the key borrowing rate to 11.25% and marking the first
moves to reduce interest rates in the region.
The central bank pointed to a gradual easing of the
country's inflation rate over the past six months, as well as
its expectation that the trend will continue later this year,
having accelerated to almost 10% last year.
The central bank hiked its key rate 700 basis points between
August 2021 and December 2022, before keeping the rate stable at
11.50% in the first part of this year.
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