Uruguay Bank Chief Rules Out Risk of Inflation Surge as Economy Rebounds
Uruguay's Economy deputy secretary Mario Bergara. Photographer: Antonio Scorza/AFP/Getty Images
Uruguay’s central bank is “comfortable” with the country’s current rate of inflation and sees no reason to fear any sharp increase in prices, bank President Mario Bergara said.
“We don’t see anything that represents an imminent risk of a jump in inflation,” Bergara said in an interview today at his office in Montevideo.
The bank’s three-member policy committee held its overnight lending rate at 6.25 percent at its last meeting on June 24, saying in a statement that rising commodity prices and increased domestic demand may begin to pressure prices in the $34 billion agriculture-based economy.
Last month, year-on-year inflation slowed to 6.19 percent, the first time it has been within the central bank’s target of 3 percent to 7 percent since March. Consumer prices climbed 0.28 percent from May as food and beverage prices fell, according to the national statistics agency.
“Although inflation is being contained, there is a tough core that remains high,” said Mariana Ferreira, an economist at CPA Ferrere research company in Montevideo. Ferreira forecasts price increases will accelerate to 7.4 percent by year end.
Fitch Ratings today upgraded Uruguay’s long-term foreign currency Issuer Default Rating to BB from BB-, saying the economy showed “increased resilience to external shocks.” The move puts the country in the same category as Costa Rica and the Philippines.
“In spite of the high level of financial dollarization, the country did not face balance of payment pressures or financial instability during the stress test of the global financial crisis,” Fitch said in a statement.
Vigorous Growth
The peso was fell 0.6 percent to 21.07 per dollar today. The currency has fallen 6.9 percent this year, the worst performance among seven major Latin American currencies.
Uruguay’s economy will expand “vigorously” this year, returning to the rates at which it grew before the crisis, Bergara said, without giving a forecast. Fitch said the economy will expand 5.5 percent this year.
The economy grew 8.9 percent in the first three months of this year from the same quarter of 2009. In the whole of 2009, the economy expanded 2.9 percent, its seventh straight year of growth, central bank data show.
“There’s margin for Uruguay to keep growing, but it has to improve infrastructure in ports and highways to prevent possible bottlenecks in the future,” Ferreira said.
The bank’s overnight rate is suitable given the pace of inflation, Bergara said. Most other Latin American countries, except Brazil, have lower rates because they have slower inflation, he said.
The bank board will hold its next meeting on Sept. 23.
“The benchmark rate in Uruguay is not out of line with what other countries in Latin America are doing,” Bergara said.
To contact the reporters on this story: Lucia Baldomir in Montevideo at lbaldomir@bloomberg.net; Eliana Raszewski in Buenos Aires at eraszewski@bloomberg.net
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