Uruguay’s central bank surprised the market by keeping on hold the benchmark interest rate at 9.25% after increases at the two previous monetary policy meetings failed to slow inflation, one of the country’s main concerns.
The Uruguayan economy expanded between 3% and 3.5% last year which is below the 5.7% of 2011, mostly because of a serious drought and a deteriorating world situation, advanced the country’s Central bank president Mario Bergara.
Uruguay's central bank announced on Wednesday it will raise marginal reserve requirements on local and foreign currency deposits from April 1 as part of its effort to bring inflation within the official target range, which has been missed in the last three years.
The Consumer Price Index, CPI, in Uruguay climbed 0.99% during February, accumulating 2.91% in the first two months of the year, and 8.89% in the last twelve months, far above the government’s target of 4% to 6%, according to the National Institute of Statistics, INE Monday release.
Two contrasting views have surfaced in the Uruguayan government regarding inflation which has been steadily climbing and seems so far immune to monetary tools, but is now the second highest in the region behind Argentina.
Inflation in Uruguay climbed 1.9% in January totalling 8.72% in the last twelve months, according to the latest release from the government’s stats office, INE. Last year twelve month inflation reached 7.48% and for this year the government established a target of 4% to 6%.
Consumer prices in Uruguay ended the year at 7.48% after recording the lowest December percentage in forty years: a negative 0.73%. However analysts and consultants anticipate that inflation in the first quarter of 2013 will remain above an annualized 8%.
Uruguay’s Central bank on Wednesday made its largest purchase of US dollars on record totalling 120 million dollars following on the bank’s monetary committee decision in the last week of 2012 to increase the basic rate to 9.25% as the country struggles to contain inflation.
Uruguay’s Central bank raised its benchmark interest rate on Friday for the second time this year as policy makers struggle to bring inflation into the government’s target range. The IMF and local economists have warned about the need to “tackle inflation”, particularly since the budget’s fiscal deficit has soared in just twelve months from 0.4% of GDP to over 3% of GDP.
“Tackling inflation is Uruguay’s priority” said the International Monetary Fund board on Friday after inflation in October climbed to 9.1%. Monetary policy is not enough: the government must make efforts to cut back government spending and moderating wage growth insisted the IMF.