|
The
political scandal involving a key legislative aid appears to be moving out
of the limelight but the taint of corruption will continue to haunt the
government in the run-up to the October municipal elections.
Meanwhile, the economy is receiving a strong boost from the export sector
driven by the rebound in global demand, while a clear recovery in domestic
demand remains absent. |
|
Central
Bank eases monetary reins for first time since December
The easing of inflationary pressures, continued stability in the exchange
rate and the absence of a strong rebound in economic activity encouraged
the Central Bank to lower the benchmark SELIC interest rate by 25 basis
points to 16.25% on 17 March. The March move by monetary authorities
represented the first downward adjustment to the SELIC rate since December.
A persistence of further currency appreciation and moderation in inflation
are likely to enable the Central Bank to maintain a more accommodating
monetary policy in the coming months. In fact, Consensus Forecast
participants anticipate the benchmark interest rate to drop further to
15._% by the end of the second quarter and close the year at 14.2%, which
is down 0.1 percentage point from last month’s forecast. Declining
inflation is also seen to favour the interest rate setting for next year,
as Consensus Forecast participants expect the SELIC rate to decline
further throughout 2005 to reach 12.7%, which is down 0.2 percentage
points from last month.
Inflation
dropping but likely to accelerate amid anticipated pick up in domestic
demand
In March, consumer prices rose 0.47%, which was a notch above market
expectations but well below the 0.61% increase registered in February.
The highest monthly increases were observed in personal expenses and
health costs. On the downside, transportation was the only
sub-category to experience a price decline over the previous month.
The March figure brought annual inflation down from 6.7% in February to
5.9%. Wholesale prices are exhibiting a similar trend. In
March, wholesale prices rose 1.09%, which was down from the 1.42% increase
in February. The March figure brought the annual variation in
wholesale prices down to 3.6% from 4.5% the prior month. Inflation
is gradually converging with monetary officials’ target rate of 5.5% for
this year. Central Bank officials anticipate the exchange rate to
remain stable this year and that the anticipated pick up in economic
activity will not threaten the established inflation goal for this year.
However, Consensus Forecast participants believe that annual inflation
will rise moderately to 6.1% by the end of the year, which is within the
+/- 2.5% tolerance margin set by the Central Bank. Despite the
likelihood for further currency depreciation next year and more
accelerated economic activity, Consensus Forecast panellist anticipate
inflation to drop to 5.2% by the end of 2005, which is also above the
monetary authorities’ target of 4.5% but within the tolerance margin.
Current
account surplus widens amid strong export performance
The improvement in the trade balance is also being reflected in the
balance of payments. The current account balance registered a
surplus of US$ 232 million in February. The surplus was a
notch below the US$ 241 million surplus observed in January but exceeded
the US$ 196 million surplus observed in February last year. The
February current account figure raised the annual current account surplus
to US$ 5.0 billion (0.9% of GDP), which stood in contrast to the US$ 5.5
billion deficit in February last year (1.4% of GDP). The strong
performance in the export sector has prompted participants to undertake
notable revisions compared to the March Consensus Forecast current account
estimate. As such, the current account deficit for this year is now
seen as reaching a US$ 491 million deficit, which is a substantial
narrowing in the balance compared to last month’s Consensus Forecast
figure of US$ 1.7 billion.
|
Economic Forecasts
from Top Financial Institutions. Order
here!