The central bank of Uruguay raised its monetary policy rate by 25 basis points to 9.00 percent, concerned that actual inflation and inflationary expectations were well above the bank's target range.
The uncertain global economy and worrying economic and financial situation in several European countries implies that international interest rates will remain extremely low for a considerable period, Banco Central del Uruguay (BCU) said in a statement following a meeting of its Monetary Policy Committee.
Investors will therefore continue to move towards reserve currencies for safe haven and also seek profit by investing in the securities of emerging markets. Commodity prices have also risen recently but the recent slowdown in the economic growth of emerging markets cannot offset the inflationary pressures of higher food, minerals and energy prices, the bank added.
At the same time, the bank said Uruguay's economy continues to grow at reasonable rates, especially considering the international slowdown, and it is "necessary to avoid a situation in which inflation threatens an otherwise healthy economy."
Uruguay's economy grew by an annual rate of 3.8 percent in the second quarter, down from 4.20 percent in the first.
The inflation rate in August rose to 7.88 percent from 7.48 percent, well-above the bank's inflation target of 4-6 percent.
BCU had held its policy rate steady at 8.75 percent since December 2011 when it was raised by 75 basis points to 8.75 percent.