Uruguay must adopt an attitude of “serene alert” given the “uncertainty and uncommon volatility” prevailing in the world said central bank president Mario Bergara, underlining the country has reduced “vulnerabilities” considerably.
“Uruguay has a ‘platform’ which enables us to sail in choppy waters, but nevertheless must pay attention and act with caution”, said Bergara addressing a business forum on Wednesday during which he insisted several times with the “serene alert” term emulating recent words from Italian PM Mario Monti.
He described the ‘platform’ as fiscal, monetary and financial prudence, inflation under control, reasonable debt level, access to financial markets, strong international reserves and trade diversification.
“We should not despair because inflation is above the bank’s target (4% to 6%), and is heading for 8% because it is a matter of equilibrium and keeping companies with the right capacity to compete, which has been achieved”, pointed out Bergara.
Nevertheless there is concern in keeping inflation under control, which again he said was being achieved. The recent decision to increase the private banking system marginal reserves looks to “reinforce the contractive inclination of monetary policy, but not with a specific outcome”.
Bergara discarded criticisms from the private banking sector which argued that the additional reserves would push more customers to the so called non regulated financing houses. He said that “the financial impact is not that significant to make us believe people will start abandoning banks for the unregulated financing houses”.
He added that the measure also helps as a “macro-prudential” element “to soften incentives for short term capital inflows” which generate “most challenges to the economic and monetary policies”.
Bergara said that “credit to the private sector, mainly consumers and families are growing at rates which demand us to be alert because of their inflation impact, but at levels “still considered low”. He indicated there wasn’t an exchange rate risk for those who have incomes in Pesos and have credits in dollars.
“It is only natural for family incomes to grow and consumption to keep increasing and then have an impact on prices”, said the central bank president. “On the contrary it is welcome as long as the whole process derails does not derail”.
“We believe that with ‘serene alert’ we can manage to cope the impact of the global situation and our vulnerabilities”.