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Investing.com -- The Central Bank of Uruguay (BCU) has reduced its Monetary Policy Rate by 25 basis points to 8%, continuing its gradual shift from a contractionary stance toward monetary policy neutrality.
October inflation in Uruguay stood at 4.32%, remaining close to the target for the fifth consecutive month. Core inflation decreased to 4.7% and is moving closer to the target, though its non-tradable component remains at the upper limit of the 3%-6% tolerance range.
Monetary policy credibility is strengthening in the country, with the average two-year inflation expectation holding steady at a historic low of 4.98%. Financial markets project inflation at 4.75% and analysts at 4.7%, both near the target, while business expectations are higher at 5.5%.
Short-term inflation projections have remained stable compared to the previous Monetary Policy Committee meeting and are expected to converge below the target over the policy horizon.
Economic activity in Uruguay continues to show growth indicators around its potential level, with a product gap close to zero, consistent with previous assessments.
The BCU noted that while global and regional uncertainty has decreased since the last committee meeting, it remains elevated. The dollar is weakening globally, and most commodity prices are stable, though some commodities important to Uruguay, such as beef, continue to be expensive.
The decision to cut rates was unanimous among board members. The central bank indicated that as long as economic conditions evolve as expected, it will continue to gradually reduce interest rates toward a neutral monetary policy stance.
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