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As a result of rising inflationary expectations, the peso has depreciated
10.1% from the end of December last year through the end of May.
In fact, the pace of depreciation quickened and the currency
depreciated a further 3.9% in May, closing at 2,085 pesos to the US$ at
the end of May. Inflation
concerns and the weakening peso have provided the Central Bank with
further impetus for monetary tightening.
As a result, the benchmark DTF rate has inched up 84 basis points
in the last two months from 10.9% at the end of March to 11.8% at the end
of May. Nevertheless,
panellists anticipate that the currency will begin to stabilize throughout
the year, with the nominal depreciation reaching 10.8% and the currency
closing out the year at 2,099 pesos to the US$.
Interest rates, are expected to continue their upward trend.
The DTF is seen at 16.5% by year-end.
Exports push recovery.
The recovery in industry has been driven primarily by a strong
export sector rather than a strong recuperation in domestic demand.
Rising oil prices and continued strong growth in the United States
and a favourable exchange rate have strongly pushed exports.
According to DANE, annualised exports rose by 14.8% in March over
the same month last year. Traditional
exports especially oil, accounted for the majority of export growth - oil
and oil derivative exports were up 78.8% over the same month last year. Non-traditional exports expanded at an annualised rate of
2.9% in March over the same month last year with chemical products
(+10.9%) and mining (+149.7%) exports showing particularly improved
performance. The lagging
demand for imports persisted in March and annualised imports remained
17.0% below levels last year. Annualised
consumer and capital good imports remained 20.0% and 23.8% below their
March 1999 levels, while intermediary good inflows were down 10.0%.
The favourable export performance and stagnant import flows pushed
the March trade balance surplus to US$ 1.3 billion.
Consensus Forecast participants expect the favourable export
performance to continue through the end of the year, with growth
anticipated to reach 16.5%. Imports
are also likely to recover by 10.4%.
As a result, the trade balance surplus is expected to continue to
grow to US$ 1.5 billion.
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