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Public sector incurs large surplus in first half 2003
During the first half of 2003, the public sector’s overall balance
accumulated a surplus of 62.2 billion pesos (US$ 6.8 billion), 147.2%
higher in real terms than the surplus registered in the same period last
year. The increase in the surplus was due to a surge in public revenues
(+14.3% in real terms over the first half 2002), whereas expenditures grew
at a strong but more moderate pace (+9.6% yoy). Budgetary revenues
amounted to 805.6 billion pesos (US$ 87.6 billion) during the first six
months of the year. As a result, public sector revenues for the first half
of the year exceeded the original budget by 50.0 billion pesos (US$ 5.4
billion). The increase in the surplus was mainly due to the favourable
development of the oil price and, to a lesser extent, an increase in
non-recurrent revenues. In the second half of the year, the evolution of
public finances could revert, amid the absence of these positive factors.
Furthermore, the recent Supreme Court ruling that declared
unconstitutional the substitute tax to the salary credit and the
modifications to the fiscal laws approved by Congress that were not
incorporated to the Revenue Law for 2003, could have a negative impact on
the tax collection for the remainder of the year. Nevertheless, Consensus
Forecast panellists remain optimistic that the government will meet its
fiscal deficit target of 0.65% of GDP for 2003 and have maintained their
forecast at 0.53% of GDP.
Inflation continues to moderate in July
In July, consumer prices increased by 0.14%. The actual rate came in well
below last month’s Consensus Forecast, which had seen consumer prices
growing by 0.26% in July. The July reading represents the fourth
consecutive month of moderate price developments, following on more
pronounced price pressures up to March, which had sent annual headline
inflation to 5.6%. The price pressures observed in the beginning of the
year had fuelled concerns that the Central Bank might not be able to meet
its year-end inflation target of 3.0%. However, subdued domestic demand
and a strong peso have resulted in abating price pressures in the second
quarter and headline inflation has dropped to 4.1% in July. Core
inflation, which excludes the volatile price categories that distort the
monthly readings, also remains well in check. In July, the monthly core
price index added 0.14%; the annual core inflation rate remained unchanged
at 3.6%. Consensus Forecast panellists have reflected the recent benign
inflation trends into their outlook and have lowered their year-end
projection a notch to 3.8%.
Interest
rates reach new historic lows
Despite the favourable inflation environment, falling inflationary
expectations and the subdued outlook for domestic demand, the Central Bank
has maintained its monetary policy stance unchanged. Nevertheless,
interest rates continue to drop, reaching new historic lows. At the end of
July, the benchmark Cetes 28-day rate dropped to 4.14%, from 4.72%, which
had marked a historic low at the end of June. Given the current inflation
rate, real interest rates are barely positive, which should serve as a
solid support of the domestic economy.
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