By www.CentralBankNews.info Uruguay’s central bank raised its policy rate by another 25 basis points to 9.25 percent in an attempt to rein in inflation and keep inflationary expectations in check.
Banco Central del Uruguay (BCU), which also raised rates at its previous meeting in September, said the country’s economy was continuing to grow at a reasonable pace, propelled by higher exports and services, rising private investment and strong domestic demand.
But inflation is the central risk facing Uruguay’s economy and “both the actual inflation rate as well as agents’ expectations remain well above the target range,” BCU said in statement.
Uruguay’s Gross Domestic Product rose by 1.2 percent in the third quarter from the second for annual growth of 3 percent, down from a second quarter rate of 3.8 percent.
The inflation rate in October rose to a new high for the year at 9.1 percent compared with September’s 8.6 percent, well above the central bank’s 4-6 percent target range.
The bank has now raised rates by a total of 50 basis points this year.
BCU said the global economic context still looks weak and uncertain and it expects international interest rates to remain “extremely low for the policy horizon with predictable consequences for capital flows.”
The central bank has often warned about the inflow of international capital in search of higher yields that tends to put upward pressure on host currencies, making their exporters less competitive. However, a higher valued currency also tends to hold back inflation as import prices fall.
The central bank added that commodity prices remain high and this is leading to inflationary pressures despite the slowdown in emerging economies.
