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Consumer
prices on modest upward trend
In November, consumer prices were unchanged over the previous month which
was below market expectations of a 0.61% increase and also below the prior
month’s reading of 0.39%. As a result, the annual inflation rate
dropped from 5.7% in October to 5.4% in November. At its current
level annual inflation remains well below the Central Bank’s target
range of 7% to 11%. Despite strong economic growth, inflation has
remained contained, helped by stability in the exchange rate throughout
most of the year. Next year, accelerated currency appreciation is
likely to exert some upward pressure on prices, as the Consensus Forecast
sees annual inflation rising to 7.6%, which is up a 0.1 percentage point
from last month’s forecast but remains within the 5% to 8% target range
set by monetary authorities for 2005.
Currency
strengthens further despite Central Bank intervention
In November, the currency appreciated 1.1% in nominal terms to reach 2.94
pesos to the US$. The November appreciation followed a 0.3%
strengthening in the previous month and represented the strongest monthly
appreciation in the currency observed since March. The current
exchange rate strengthening reflects increased US$ earnings by exporters,
who continue to benefit from the pick up in global demand and rising
international commodity prices. Furthermore, demand for US$ remains
subdued as the government’s need for foreign currency is stemmed by
continued delays in debt restructuring. The government remains
concerned about the currency appreciation, as it threatens to curtail the
current export expansion. Monetary authorities have been purchasing
an average of US$ 20 million daily to bolster the peso. However,
intervention strategy has not helped to sustain the exchange rate at 3.00
pesos to the US$ threshold desired by the government. Consensus
Forecast participants expect the currency to depreciate 1.1% in the final
month of the year and to reach 2.97 pesos to the US$ by year-end, which
represents a 1.4% annual nominal depreciation. Next year, the
currency is anticipated to depreciate at a more accelerated pace of 3.4%
nominally to close at 3.08 pesos to the US$.
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