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Outlook
remains
solid as Camisea project will bolster growth in second half
Consensus Forecast panellists remain upbeat about growth prospects and the
economy is seen as experiencing yet another year of robust growth.
In the second half, economic activity is expected to accelerate to 4.3%
from 4.2% in the first half, as external demand continues to thrive and
the giant Camisea project will add momentum. For the full year, GDP
should grow by 4.2%, unchanged from last month’s forecast. The
second-half boost should also provide a solid backdrop for continued
robust growth next year, which is anticipated to reach 4.0%, up 0.2
percentage points from last month.
Headline
inflation drops in September but remains well above target rate
In September, consumer prices remained virtually unchanged. The
reading was in line with last month’s Consensus Forecast figure, which
saw prices to increasing by 0.04% versus the actual 0.02%. The price
stability observed in September represented the second consecutive month
of price stability. Higher prices for housing, fuels and electricity
as well as transport/communications and education/cultural activities were
offset by lower prices on food and beverages. As a result of the
moderate price development in September, annual headline inflation dropped
0.6 percentage points to 4.0%. The decline in annual headline
inflation is putting an end to the rapid rise registered since April, when
inflation shot up by 1.8 percentage points to 4.6% within four months.
Despite the decline, inflation remains well above the Central Bank’s 1%
tolerance margin around the 2.5% central target. Core
inflation, which excludes the erratic effects of volatile categories such
as fresh fruits and vegetables as well as fuels, is developing more
favourably. In September, the core inflation index was also
virtually unchanged (+0.02%) and annual core inflation remained at 2.8%.
Inflation
likely to drop by end of the year
The Central Bank projects that inflation will drop in the coming months to
finish the year close to the upper end of the tolerance margin. In
2005, monetary authorities hope to return to the centre of the target
range. The Bank expects core inflation to be slightly above the
mid-point of the range in both years. Consensus Forecast
participants have reflected the recent price pressures by raising their
year-end 2004 inflation forecast another 0.2 percentage points over last
month to 3.2%, well above the Central Bank’s target but just a notch
above the border of the tolerance margin.
Central
Bank tightens policy to stem inflationary pressures
In order to stem the inflationary pressures, the Central Bank raised the
reference interest rates of the monetary operations by 25 basis points on
7 October. This implies that monetary operations via the injection
and withdrawal of liquidity by auction will be executed to maintain the
interbank interest rate around the centre of the corridor of 3.0%, as set
by reference interest rates. For direct repos and monetary
regulation credits, the rate was raised from 3.50% to 3.75% and for
overnight deposits, interest rates went up from 2.00% to 2.25%.
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