Uruguay’s central bank held its benchmark interest rate after increases at the two previous monetary policy meetings failed to slow inflation in the agriculture-based economy.
The committee held the benchmark rate at 9.25 percent following raises of 25 basis points in September and December. Three out of four economists surveyed by Bloomberg forecast an increase in the rate while the other forecast no change.
“Inflation continues to be one of the main concerns” of Uruguay’s economy, the bank said in today’s statement, adding that its decision to hold rates took into account a recent increase in reserve requirements.
The effective rate of inflation as well as inflationary expectations, while significantly less than the current pace, continue “considerably higher than the target range,” the board said.
Annual inflation accelerated in February to 8.89 percent from 8.72 percent in January and has remained above the bank’s target of 4 percent to 6 percent since 2009. Consumer prices will rise 8 percent this year, according to the median estimate of economists in a central bank survey released this month, compared with a 7.5 percent forecast released in January.
“Inflation is a concern for this government and it will try to keep it away from 10 percent, that’s a psychological limit,” said Julio de Brun, a former central bank president, said in a telephone interview from Montevideo before the bank decision. “There have been some wage increases of about 10 percent that were passed on in prices.”
Inflation won’t slow to within the central bank’s target range this year because of robust domestic demand, Central Bank President Mario Bergara said in a March 15 interview.
Annual inflation of around 8 percent to 9 percent is manageable and stems from rising incomes and prices for soy and meat exports, Bergara said.
The central bank on Dec. 13 reported that Uruguay’s $45 billion economy expanded 3 percent in the third quarter from a year earlier and 1.2 percent from the previous quarter. The bank will release fourth-quarter and 2012 growth on March 27.
The economy will expand 3.86 percent this year from 3.9 percent in 2012, according to the median estimate from economists surveyed by the central bank this month.
Uruguay’s credit rating was raised to investment grade by Standard & Poor’s in April and by Moody’s Investors Service in July after the South American country reduced debt and diversified exports. Fitch Ratings places the country one level below investment grade.
The peso strengthened 0.9 percent to close at 18.83 per dollar.
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