REUTERS SUMMIT-Rates and reserve requirement to tame Uruguay's inflation
By Malena Castaldi and Felipe Llambias
MONTEVIDEO May 21 (Reuters) - Uruguay's main economic problem is high inflation, and policymakers will continue to use interest rates and bank reserve requirements to bring it under control, Vice President Danilo Astori said on Tuesday.
Consumer prices in the small South American country rose 8.14 percent in the 12 months through April, far outside the country's official annual target range of 4 to 6 percent.
"It is the main macroeconomic problem of Uruguay," Astori told the Reuters Latin America Investment Summit. "But we cannot be distracted at all, we have to keep the target range between 4 and 6 percent, and that's what we're doing"
The economy grew 3.9 percent in 2012 after rising 6.5 percent in 2011. Despite slower growth, consumer prices remain a concern for policymakers.
The central bank raised its benchmark interest rate by 25 basis points to 9.25 percent in December and then held it there in March, when it raised marginal reserve requirements on local and foreign currency deposits.
Banks in the country have to abide by a marginal reserve requirement of 25 percent for deposits in Uruguayan pesos, up from an earlier 20 percent. The requirement for foreign currency rose at the start of April to 45 percent from 40 percent.
"We do not have any planned policy changes on the table, but we will be monitoring developments," Astori said. "We trust in the sustainability of the measures we are taking and believe they will give positive results over time."
Uruguay's marginal reserve requirements refers to the growth of deposits since April 2011, when the central bank introduced the scheme to expand its monetary policy tools.
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