The Uruguayan peso falls to its lowest value against the dollar in four years

On August 22, 2013 Uruguay’s exchange rate hit 22.43 UYU to the dollar, the lowest the Uruguayan peso has been against the dollar in almost four years.

The dollar rose 1.84% against the Uruguayan peso on August 22, after having already risen 1.97% on Wednesday. Wednesday’s increase was the  biggest single day increase in nearly three months.

Uruguay’s vice-president, Danilo Astori commented yesterday in the Uruguayan city of Mercedes that “there is no reason to expect a drop in the dollar for the rest of the year”.

Yesterday, the average interbank exchange rate was 22.43 UYU to the dollar, the lowest the Uruguayan peso has been since September 2, 2009.

This Uruguayan Business Reports news article is a translation of a news article that appeared in the Uruguayan newspaper El Pais. The original article is available in Spanish here. Uruguay Business Reports translation by Donovan Carberry.

Uruguay’s government divided whether to tackle inflation or exchange rates

Brazil lowers interest rates again and exacerbates competitivity issues

The Uruguayan government is divided on what should be the focus of economic policy: fighting inflation or maintaining an exchange rate that keeps exporters competitive.

Gabriel Frugoni, director of the Planning and Budget Office (OPP), is now publically questioning the Economy Ministery and Central Bank’s policy objectives and urging the government to concentrate keeping a competitive exchange rate rather than try and slow down inflation.

Mr. Frugoni, one of President Mujica’s principal economic advisors, told the Uruguayan newspaper La Diaria that “a plan which can counteract the [the effects] US [quantitative easing] policies will be necessary.”

The Uruguayan Central Bank (BCU)’s Monetary Policy Committee chose to raise the reference interest rate by a quarter of a point to 9% at their trimester meeting. The move was added at combating inflation but made Uruguay’s currency more expensive, hurting exporters.

On Thursday Oct 11, the Central Bank of Brazil decided to cut its reference interest rate by a quarter of a point bringing it to 7.25%. The divergence in monetary policy increased Uruguay’s competitively problems since Brazil is Uruguay’s number one trading partner.

According to Frugoni, Uruguay’s economic policies should ensure “a productive complementarity with the region”. He explained, “today there is inflationary pressure but we definitely will have to address competitiveness”.

The division amongst President Mujica’s government was made apparent a few hours after the interview with Frugoni was published. The presidential website published a press release in which the economy ministry’s macroeconomic assessment director, Andrés Masoller, analyzed September’s inflation data and praised the government’s focus on inflation.

This Uruguay Business Reports news article is a translation of a newspaper story that appeared in the Uruguayan newspaper El Observador. The original news article is available here. Uruguay Business Reports news translation by Donovan Carberry

After sharp rise, the dollar has stabilized at $21.641 Uruguayan Pesos

The dollar has risen substantially against the peso recently. The bottom lists the date. The left side lists price of dollar in pesos. Red is average price. Blue is closing price (Source: BSVA)

The US dollar has risen 1.191% against the peso since the start of June and has increased 8.76% since the start of the year.

The price of the dollar held steady Thursday trading at an average of $21,641 Uruguayan pesos on the Electronic Stock Exchange (BEVSA). 22 transactions were completed on BESVA’s currency exchange market for a total equivalent to $6.1 million USD with prices moving between $21.58 USD to $21.70 USD.

Money Market

During the Uruguayan peso market working day there were 18 transactions for a total of $2,340 Uruguayan pesos at an effective average annual rate of 8.75%.  The average yield of these positions in CALL so far this year is 8.75%. The amount clearing Montevideo was 324 million pesos, less than the day before by 178 million pesos.

The primary money market for Uruguayan currency operates through Deposit Certificates (CD) which completed 1,632 million pesos worth of transactions at effective annual rates between 7.4% and 8.75%. Issues of certificates in Uruguayan currency are made in installments of 1 to 7 days.

Issuing by the Central Bank

Today the Central Bank has not issued any currency and there were no expirations.

This Uruguayan Business Reports news article is a translation of a article that appeared in the Uruguayan newspaper El Pais. That article is available here. Uruguayan Business Reports translation by Donovan Carberry.

Uruguay’s inflation rate was over 8% during the last 12 months

With Uruguay’s consumer price index rising .39% in May, the indicator is up 8.06% over the last 12 months

The consumer price index (CPI) grew .39% in May bringing inflation over the past year to 8.06%. The rise in May was more than, but similar to, last years increase in May (.33%).

During the first 5 months of the last 12 month period the consumer prices  increased 3.82%.

The data shows an increasing gap between actual inflation and the target of 4% to 6% inflation over 18 months.

The categories of consumer goods with higher prices in May where housing, transportation, and to a lesser degree, clothes and footwear. The increases in these areas were partly offset by the decreases in the price of food and nonalcoholic beverages.

Housing cost increases in May can be explained by rent adjustments (1.15%), taxes on homes (3.42%) and rising energy costs (rates were adjusted on April 10th) and firewood.

Transportation costs were also influenced by the increase in ANCAP’s gas prices which led to higher taxi fares as well as higher priced bus and airplane tickets, and higher costs for drivers.

The decrease in food prices was the result of falling meat (-1.5%) and vegetable prices (-2.56%).  Milk and fruit prices increased 1.13% and 2.32%.

May’s price increase came during a period when the dollar has been gaining strongly against the peso, especially in the month’s second half. The dollar’s appreciation will add more inflationary pressure by increasing the cost of imported goods.

This Uruguay Business Reports news article is a translation of a news article that appeared in El Observador. The original Spanish language news article can be found here. Uruguay Business Reports translation by Donovan Carberry.

Brazilian efforts to increase growth cause Uruguayan exports to lose their competitive advantage

Brazil is trying to encourage the automobile sector and foster consumption of durable goods.

In the dilemma of whether to stimulate growth and attending to inflationary pressure, Brazilian authorities made explicit their preference for economic expansion. Far from benefiting Uruguay, Brazil’s policy is making it difficult to stay competitive, because the Uruguayan government’s priority, combating inflation, clashes with that of the Brazilians.

While Uruguay pursues a contractile monetary policy, discourages recruitment of private sector credit and leaves its currency to be set by the global market, in Brazil the government is lowering interests rates to serve as a fiscal stimulus and deliberately acting in the currency market to weaken the real and reduce the costs of domestic products.

In other words, Brazil is accelerating growth through a boost in internal demand and Uruguay loses its competitive advantages in price and exchange rate with its principal trade partner.

Automotive Sector Boost

The government of Dilma Rousseff announced yesterday a series of measures destined to aid the automotive sector. In total, they are equivalent to a backing of more than $10 million USD for a sector that represents 20% of manufacturing GDP.

The measures cover the whole supply chain. They reduce the Industrial Production Tax (IPI) until the end of August, both for local cars, from 7% to 0% for low cylinder cars and from 11% to 5.5% for high cylinder cars, and imports, from 37% to 30% and from 41% to 35.5%, respectively. At the same time they reduce the tax on financing for individuals from 2.5% to 1.5% and lowered the deposit requirements if banks utilize the excess ($8.8 million USD) to finance vehicles.

The Brazilian government will lose close to $1.026 million USD in taxes because of the subsidy, a luxury they can afford because of a $32 billion USD budget cut in February. In Uruguay, the Economy Minister, Fernando Lorenzo, expressed his concern about the international situation aggravating the economy at the weekly cabinet meeting. The proposed budget under review by the Uruguayan government will not cut spending but expand the budget although within the criteria of “prudence”.

Monetary Policy

The principal divergence between Uruguay and Brazil is in monetary policy. While the Uruguayan central bank increased interest rates since June of last year, its Brazilian counterpart has moved in the opposite direction.

Most analysts polled by Bloomberg predict another decrease in Brazil’s SELIC rate (Special Clearance and Escrow System), after its meeting this month. It will be the sixth consecutive decrease under Rouseff and its lowest level in the last 15 years.

In contrast, in December Uruguayan authorities surprisingly increased the rate 75 basis points to 8.75%. The difference in the policies and greater participation of Brazil in the exchange market has brought about a substantial gap between the Uruguayan and Brazilian currencies.

Official interventions in the Uruguay exchange market were sporadic and had little overall effect.

Beginning in March, the dollar began to rise in both countries. However, the rise in Brazil was strong and sustained, while in Uruguay it advanced slowly and occasionally slid back. Since the end of February, the dollar has increased 5% against the Uruguayan peso, while in Brazil it increased by 21.3%.

Yesterday the president of the Uruguayan Central Bank, Mario Bergara said that the dollar in Uruguay rises or falls according to the “strengthening or weakening of the American currency at the international level”. The president assured that the Uruguayan Peso “will continue on the wave that most Latin American countries are riding”.

But the statements from Brazilian authorities are very different. The Brazilian treasury minister, Guido Mantega, yesterday positively evaluated the exchange rate explicitly sought by the Brazilian government. Last week, for the first time since 2009, the dollar was worth more than two real. “This exchange rate creates a favorable situation”, said Mantega. “It lets us reduce the ‘cost of Brazil’ and the country becomes more competitive”.

The bilateral real exchange rate between Brazil and Uruguay decreased 4.7% in the first five months of the year, according to the Central Bank’s calculations. It is currently 1 real to 9.785 Uruguayan pesos.

Despite this, the Brazilian minister communicated yesterday that they had lowered growth expectations from 4.5% to 3.5% for the this year. The Uruguayan government maintains expectations of 4% growth in line with the analysts’ projections.

 

US dollar passes 20 Uruguayan Pesos and is trading at its strongest against the peso this year

The greenback jumped nearly .54% which put it above $20 Uruguyan pesos in the daily average for the first time since the 29 of last December, in the context of strong momentum buying by some private banks, before the new appreciation of the dolar internationally.

Inter-bank trading yesterday brought the price of a dollar to $20.029 Uruguayan pesos, a total rise of 1.19% in May and of .66% over the year.

For its part the Bank of the Republic increasted the public price of the dollar from $19.75 UP to $20.25 UP.

Exchange agents consulted by El País said that the rise of the dolar in the local market was due exclusively to the rise of the greenback outside the country, principally in Brazil. Worries about the future of Greece in the Euro zone continue to generate uncertainty in the markets.

Local trading at the Electronic Stock Exchange was $13.1 millon, without the intervention of the Central Bank or the Bank of the Republic, which were absent during the slow working day.

This Uruguay Business Reports article is a tranlslation of an story which appeared in the Uruguayan Newspapaer El Pais. The original story in Spanish can be viewed here. Uruguay Business Reports Translation by Donovan Carberry.

El billete verde dio un salto en la víspera de 0,54% que lo llevó a superar los $ 20 en el promedio diario por primera vez desde el 29 de diciembre pasado, en un contexto de un marcado impulso comprador por parte de algunos bancos privados, ante la nueva apreciación del dólar a nivel internacional.

Las compraventas interbancarias de ayer se efectuaron a $ 20,029, con lo que acumula una suba de 1,19% en mayo y de 0,66% en el año.

Por su parte, el Banco República aumentó 10 centésimos la cotización al público hasta $ 19,75 y $ 20,25 cada punta.

Agentes cambiarios consultados por El País explicaron que este ascenso del dólar en el mercado local se debió exclusivamente al fortalecimiento del billete verde en el exterior, principalmente en Brasil. Es que en el mundo las preocupaciones respecto del futuro de Grecia en la zona del euro siguen generando incertidumbre en los mercados.

La operativa local a través de la Bolsa Electrónica de Valores fue de US$ 13,1 millones, sin la intervención del Banco Central ni del República, que se mostraron ausentes en la jornada de baja operativa.