By Lucinda Elliott

MONTEVIDEO Uruguay's central bank is likely to cut its benchmark interest rate again at its next monetary policy meeting in October as inflation has fallen to a near two-decade low, governor Diego Labat told Reuters on Friday.

The South American country has led the region's pivot to rate cutting after sharp hikes by central banks around Latin America in recent years to rein in prices, an aggressive tightening cycle that helped many get inflation under control.

"Interest rates today are at 10%, probably we can decrease rates in the next session, though it depends on the inflation path," Labat said in an interview at Uruguay's central bank in downtown Montevideo.

Uruguay saw annual inflation come down to 4.1% last month, the lowest level since 2005, which has opened the door for more easing. The central bank has cut rates three times this year after first lowering the rate to 11.25% from 11.5% in April.

"Inflation is on a good path," Labat said, adding he was optimistic about prices towards the end of the year, which he said typically had low inflation. The bank was on track, he added, to hit its 5% annual inflation target this year.

Uruguay's farm-driven economy is this year forecast to grow just 1%, down from 4.9% last year due to a severe drought that wreaked havoc on agricultural exporting economies across the region at the end of 2022.

But Labat is confident the Uruguayan economy will rebound strongly next year.

"We are very optimistic about 2024, with a 4% GDP (growth) forecast," Labat said, which he largely attributed to more promising harvests.

(Reporting by Lucinda Elliott; Editing by Adam Jourdan and Nick Macfie)