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Uruguay’s central bank acts to contain inflation out of target for three years running

Thursday, March 7th 2013 - 00:46 UTC
Full article 5 comments
The bank decided to raise marginal reserve requirements as of April first The bank decided to raise marginal reserve requirements as of April first

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.

Banks will have to abide by a marginal reserve requirement of 25% for deposits in Uruguayan pesos, up from the current 20%. The requirement for foreign currency will rise to 45% from 40%.

Uruguay's marginal reserve requirements refer to the growth of deposits since April 2011, when the central bank introduced the scheme to expand its monetary policy tools.

Consumer prices in Uruguay rose 0.99% in February, bringing 12-month inflation to 8.89%, well above the central bank's target range of 4% to 6%. Consumer price inflation was 7.48% in 2012, 8.6% the year before and 6.93% in 2010.

The central bank's key interest rate is currently set at 9.25%.

The bank release states that in the current macroeconomic context of inflationary pressures, taking into account the effective inflation rate and expectations from economic agents which continue notoriously above target (4% to 6%), “the Central bank had decided to complement the monetary policy rate with other instruments which tend to reinforce the channels of transmission of monetary policy”.

In this context “it is expected that this measure operates moderating credit growth rate and contributes through the above mentioned channel, to an aggregate demand dynamics aligned with price stability”.

Categories: Economy, Uruguay.

Top Comments

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  • ChrisR

    Not at all sure this is the way to tackle the problem.

    Trying to overcome the speculators has rebounded time and time again, even on the UK.

    Mar 07th, 2013 - 04:04 pm 0
  • Conqueror

    @1 You're quite right. The way to tackle this problem is to offer some government bonds for sale. I expect that around US$200 billion should be enough. Use this to “kick-start” the economy by starting lots of capital projects. Don't worry about repayments because there won't be many. Place about half the money raised in secure deposits. Switzerland in the president's name is a good idea. In about four years' time, after the rest of the money is spent, tell the bondholders that you need to “restructure” the debt. Offer them 35 cents on the dollar. Point out that this is far better than what argieland offered. If you get the right interest rate on the US$100 billion you salted away, it should pay the “expenses”. About 0.001% should be enough to cover legal fees and bribes! If the worst comes to the worst, get advice from a neighbour.

    Mar 07th, 2013 - 05:31 pm 0
  • ChrisR

    @2 Conqueror

    You really, really, can't help being an absolute fucking dick head at times, can you?

    Even when The Dark Country caused severe problems for Uruguay they chose a positive way to tackle the problem and everyone ended up being paid back ALL their money AND the accrued interest, albeit at a slightly longer time scale.

    Uruguay are being singled out by the main stream economists as the way forward for Greece (too late now the fix / fuck-up from the EU is in).

    Please try to keep up with the financial world and not focus on AR and tar everybody with the same brush.

    Mar 07th, 2013 - 06:22 pm 0
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