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Anticipating an inflation sprint Uruguay’s central bank raised benchmark rate to 9%

Saturday, September 29th 2012 - 09:16 UTC
Full article 28 comments
Meeting of the Monetary Policy Committee Meeting of the Monetary Policy Committee

Uruguay's central bank raised its benchmark interest rate 25 basis points to 9% on Friday in a bid to cool inflation expectations. The bank had held the rate steady at its last two monthly monetary policy meetings.

The Uruguayan economy grew by 3.8% year-on-year in the three months to June, the bank said last week, slowing from an expansion rate of 4.2% in the first quarter. But inflationary pressures have increased, the policy committee said in a statement issued after Friday's decision.

“The reactivation of external inflationary pressures and sustained domestic demand oblige us to focus on internal price pressures,” it said. “It is necessary to avoid a situation in which inflation threatens an economic scenario that otherwise looks healthy even in weak, uncertain and turbulent global context,” the central bank added.

August inflation was 0.93%, and 7.88% in the twelve months to August and 5.39% in the first eight months of 2012. Private estimates for September anticipate a floor of 1%.

In a more detailed analysis of the global context the Uruguayan central bank affirms there are no clear signs of a US recovery or visible exits for the European economic and financial crises. In this context the bank’s macroeconomic coordination committee believes international rates will continue extremely low and for a considerable time and thus financial markets will look for bonds in strong currencies for security reasons and to emerging countries for higher yields.

Commodities prices have advanced in this framework both because of the current strengthening of the US dollar and because of the North American drought which impacts on agriculture.

“Even when a slight slowing down is perceived in emerging economies, it still does not have an impact on inflationary pressures associated with food, minerals and energy prices”.

Meanwhile the Uruguayan economy continues to expand at a reasonable rate, mainly considering the deceleration at international level. There is also a high utilization of production resources and domestic demand remains strong.

Faced with strong outside inflationary pressures and the sustained domestic consumption, the bank’s concern is with domestic prices. Inflation must not be seen as a threat to an economic process which looks healthy despite world context.

Both the effective inflation rate as well as economic agents expectations remain notoriously above target, thus in line with a balance of economic policy objectives, the 25 basic points increase was decided.

The next meeting of the Monetary Policy Committee is scheduled for December 2012.


Categories: Economy, Politics, Uruguay.

Top Comments

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  • ChrisR

    But I bet the Monetary Policy Committee have ignored the USD 1.14 billion overrun in the budgets of the government owned companies such as ANCAP ( who really should be renamed ANCrap for the way they treat their captive customers), OSE, UTE (another bunch of customer deniers).

    At least ANTEL had the foresight to make capital reserves when things were better.

    The pleading to the government by this flock of poorly run businesses to allow them to take loans over years and years to cover the shortfall has been agreed without any strings such as get your costs down, rein in the unions, etc.

    USD 1.14 billion means EVERY MAN WOMAN AND CHILD has to pay USD318 (£196) to cover this disgraceful situation.

    And that is not inflationary? I think a good clearout of these government placemen 'running' (or ruining) these companies is desperately needed.

    Sep 29th, 2012 - 03:00 pm 0
  • The Chilean perspective

    Hey Chris with a 9% benchmark rate, what rate does the average Uruguayan have to pay for mortgages, personal loans and credit cards, could you inform me. Thanks.

    Sep 29th, 2012 - 10:32 pm 0
  • ChrisR

    @2 The Chilean perspective

    There are very few mortgages available to the average Uruguayan and the only way to get their own house is to save from childhood and their families help them out.

    I was amazed at how difficult it is to get your own property here and most locals have to rent.

    My escribana, whose family owns a large estate agent, says that it has always been this way but the youngsters of today no longer want to work as hard as their parents, even though they want a car, a house, etc. Where have we heard this before?

    Sellers sometimes offer a ‘loan’ or temporary deferral in payment to the buyer to help them get started. She says this is never more than 25% and never longer than 3 years to pay it back. I presume interest is agreed between the parties.

    It is only in recent years that credit cards and loans from the bank have been generally available and then for relatively small amounts.

    I no longer use my British credit cards in Uruguay and I do not have a local set; I use cash, either local pesos or for higher priced items USD.

    The middle-aged Uruguayans are proud that there is little debt in the country and want to keep it that way. I don’t think that the younger people agree.

    Sorry I can’t be any more specific.

    Sep 30th, 2012 - 12:44 am 0
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