Uruguay Introduces Reserve Requirements

Uruguay’s central bank has introduced a reserve requirement on new foreign purchases of short-term central bank bonds, it says, as it seeks to limit inflows of speculative capital into short-term central bank paper. Foreign investors buying short-term central bank paper will have to deposit 40 out of every 100 pesos in a special central bank reserve account. “Anecdotal evidence suggests that such capital inflows have increased significantly from 4% in March to an estimated 9% currently on the back of Uruguay’s recent upgrade to investment grade, sizable interest rate differentials, and a relatively flat yield curve,” JPMorgan says. The aim of the policy is to prevent any distortions in the money market related to growing foreign capital inflows, as well as limit any undue pressure that these may exert on exchange rate and inflation dynamics, it adds. The policy should have limited impact on government securities, which are excluded from the new measure, JPMorgan says.