Bloomberg News

Uruguay Unexpectedly Raises Rate as Inflation Accelerates

December 30, 2011

Dec. 29 (Bloomberg) -- Uruguay’s central bank unexpectedly boosted its benchmark interest rate to 8.75 percent today as policy makers affirmed their commitment to containing prices in the face of accelerating inflation.

The five-member Policy Committee, led by bank President Mario Bergara, raised the rate to 8.75 percent from 8 percent. The median estimate from five economists surveyed by Bloomberg was for the bank to hold the rate at 8 percent, and the highest estimate, from one analyst, was for an increase to 8.5 percent.

Inflation accelerated to 8.4 percent in November from 7.9 percent the month before, above the upper limit of the central bank’s 4 percent to 6 percent target range for the 23rd month. Europe’s debt crisis has yet to affect the $44 billion economy, which expanded 7.5 percent in the third quarter from the same period last year, the central bank reported Dec. 20.

“The central bank reacted strongly and gave a strong signal of commitment to the goal of containing inflation,” said Marcelo Sibille, an economist at Montevideo-based KPMG research company. “Price increases were out of the target range and there was a risk of losing credibility.”

Inflation will slow to 7 percent next year from 8.2 percent in 2011, according to the median estimate in a central bank survey of 11 economists, banks, pension administrators and industrial chambers released Dec. 14.

“Even if the international context negatively impacts on domestic production trends, we must face this eventuality with lower inflation figures,” the bank said in its report accompanying the decision today. “The committee noted that the inflation rate has accelerated and that expectations remain notoriously over the target range.”

The Policy Committee will next meet in March.

--Editor: Harry Maurer

To contact the reporter on this story: Lucia Baldomir in Montevideo at lbaldomir@bloomberg.net.

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net.


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