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Prospects
for carry over of robust growth this year to next
Continued resilience of economic activity has prompted Consensus
Forecast participants to maintain a positive outlook for growth this year.
Gross domestic product (GDP) is anticipated to have moderated only
slightly from the 4.0% growth pace in the second to 3.8% in the third
quarter but should pick up again in the fourth quarter with a 3.9%
expansion.
As a result, Consensus Forecast participants expect annual growth
to reach 4.0% this year, which is unchanged from last month’s Consensus
Forecast figure.
A gradual moderation in growth is likely to take hold of the
economy next year but GDP is nevertheless expected to decelerate only
slightly to 3.7%, which is 0.1 percentage points below last month’s
Consensus Forecast figure.
Inflation
moderates further despite economic expansion
In October, consumer prices remained virtually unchanged (-0.01%),
which was well below market expectations of a 0.24% increase and well
below the 0.30% increase registered the previous month.
Strong health and housing price increases were the only sectors to
experience a modest increase, as most other price categories experienced
declines.
As a result of the moderate October reading, the annual inflation
rate dropped from 6.0% in September to 5.9%.
The exchange rate appreciation observed throughout this year is
helping to keep inflationary pressure resulting from the pickup in
economic activity at bay.
In October, the currency resumed the strengthening trend observed
throughout this year, as the peso
appreciated 0.8% versus the US$ to reach 2,575 pesos
to the US$.
The currency is now 7.9% stronger than at the end of last year.
As a result of the stability in the exchange rate, Consensus
Forecast participants see inflation remaining unchanged through the end of
the year at 5.8%.
This month’s Consensus Forecast figure is 0.1 percentage point
below last month and remains within the Central Bank’s inflation target
range of 5% to 6% for this year.
Next year, Consensus Forecast participants anticipate inflation to
decline to 5.5% - on the upper end of monetary authorities’ official
target range of 3.5% to 5.5% set for 2005.
Central
Bank keeps interest rates low
The favourable inflation scenario is enabling monetary authorities to
keep monetary reins loose.
In October, the benchmark DTF rate remained unchanged at 7.7%.
The favourable interest rate setting is likely to foment the
current economic rebound further.
However, Consensus Forecast panellists do not expect the current
low interest rate environment to endure through the end of the year, with
the DTF rate expected to rise to 8.0% by the end of 2004.
Furthermore, the Central Bank is expected to tighten monetary
policy further next year, as the benchmark interest rate is seen to rise
to 8.8% by the end of 2005.
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