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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