Uruguay: Uruguayan peso hits a new multi-year low in August
August 6, 2015
In August, the Uruguayan peso depreciated to its weakest value against the U.S. dollar in over a decade, continuing the general depreciating trend that has been in place since June 2013. On 4 August, the peso traded at 28.65 UYU per USD, which was 5.5% weaker than on the same day of the previous month and 22.6% weaker in annual terms. The depreciation of the Uruguayan currency was mainly driven by increased demand for U.S. dollars, which is putting pressure on the peso. Demand for the U.S. dollar picked up as aversion to riskier currencies rose against the backdrop of the Greek debt crisis. The Uruguayan currency has lost 17.5% of its value since the beginning of this year.
The depreciation of the currency has pushed inflation to very high levels. In fact, in July, inflation reached 9.0%, which marked the highest rate in a year. Against this backdrop, earlier this month, the government resorted to price agreements with the country’s main supermarket chains to freeze the price of a basket of goods until 4 October. In this way, the government hopes to keep inflation to within one digit. Adding to that, the Central Bank has also shown its aversion to the high levels of inflation by intervening in the spot FX market for the first time in six years.