Uruguay said foreign buyers of central bank notes must deposit 40 pesos ($1.90) with the bank for every 100 pesos of securities that they acquire.
The decision to implement capital controls was taken to avoid pressure on the currency because of “unusually high” participation at debt auctions by short-term foreign investors, the bank said in a statement on its website today.
The move aims to “absorb in the best way external volatility shocks, to avoid inflation going out of control and problems in financial markets, and ensure the competitiveness of Uruguayan companies,” central bank President Mario Bergara said in the statement.
Investors will be able to purchase public debt with either local or foreign currency, regardless of the currency in which the securities are denominated, the bank said.
The peso gained 1 percent to 21 per dollar at 2:30 p.m. in Montevideo, the most in the world after the Gambian dalasi.
Uruguay’s credit rating was raised to investment grade by Standard & Poor’s in April and by Moody’s Investors Service last month after the South American country reduced debt and diversified exports. Moody’s lifted Uruguay one step to Baa3, the lowest investment grade, from Ba1 and maintained its positive outlook. The ratings company had cut Uruguay to B3 from Baa3 in 2002.
The extra yield investors demand to hold Uruguayan government dollar bonds instead of U.S. Treasuries fell five basis points, or 0.05 percentage point, to 126 at 12:24 p.m. in Montevideo, according to JPMorgan Chase & Co.’s EMBIG index. The index has fallen 87 basis points this year.