MercoPress. South Atlantic News Agency

Uruguay raises banks reserve requirements to contain inflation

Central bank president Mario Bergara, Uruguay ‘isn’t an outsider’

In an effort to contain inflation and cool an overheated economy Uruguay will raise reserve requirements for banks “given the domestic prices increase and the international context” advanced Central Bank president Mario Bergara.

Reserve requirements for peso deposits will increase to 15% from 12% and on foreign currency deposits to 18% from 15%, effective June first announced president Bergara. A marginal reserve requirement on the growth of deposits will also be implemented.

“In light of internal price increases and the international context, we understand that we must take additional measures beyond the benchmark rate,” Bergara said. “Uruguay isn't an outlier in this scenario; it's something that is happening to a good number of emerging market countries”.

The measure will freeze 480 million US dollars in deposits from being loaned.

Consumer prices in Uruguay's 40 billion US dollars economy rose 8.34% in April from a year earlier, the biggest 12-month gain since January 2009 and outside the government's 3% to 7% target range. Policy makers raised the benchmark lending rate 100 basis points, or 1 percentage point, to 7.5% at their quarterly meeting in March.

Inflation is “one of the main risks to sustainable growth” in Uruguay, Bergara said.

Uruguay's decision to raise reserve requirements is meant to “complement” and not replace the benchmark rate as the primary tool of monetary policy, Bergara said.

The Uruguayan currency has strengthened 5.9% so far this year, compared with a gain of 2.6% for the Brazilian Real and a decline of 2.6% in the Argentine Peso.

Uruguay's economy expanded 6.5% in the fourth quarter from a year earlier. Unemployment climbed to 6.4% in March from 6.3% in February, the national statistics agency reported Wednesday.