Thursday 21st April 2005

 

CBTT leaves repo rate at 5.25 %

 
 
 
 
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By Vangie Bhagoo & Stacey Ramjattan

Research Analysts

For the week ending April 15

Trinidad and Tobago

The Central Bank left its benchmark interest rate—the repo rate—at 5.25 per cent in April 2005. The decision comes despite upward pressures on headline inflation. For the 12 months to February 2005, headline inflation rose to 6.9 per cent faster than the 5.9 per cent in the 12 months to January 2005.

As in the recent past, the main thrust came from rising food prices which increased by 23.3 per cent in the 12 months to February 2005. Core inflation, which strips away the effects of food and energy prices, rose 2.8 per cent in the same period, unchanged from the 12 months to January 2005.

The interest rate differential between the US and T&T is gradually narrowing. The margin between the benchmark three-month T&T and US Treasury Bill rates has narrowed to two per cent at the end of March 2005, compared to 2.22 per cent at the end of January 2005. The latest increase by the Fed has pushed the fed funds rate up to 2.75 per cent, representing another 25 basis points increase.

On the local money market in the past week, the Central Bank had several issues. On April 11, an OMO of size $35 million was issued, yielding 5.24 per cent. This will mature on April 11, 2006. On the same day, CBTT issued a two year T-note with a yield of 5.82 per cent, in an amount of $25 million. On April 13, a 90-day debt management bill was issued at an average discount rate of 4.79 per cent. This T-bill is valued at $75 million and will mature on July 13.

Brazil

The IMF has raised its growth forecast for Brazil for 2005 on the basis that rising demand will stimulate economic activity, even if it is at a slower rate than last year. The Brazilian economy expanded 5.1 per cent in 2004, and this year the fund is projecting that growth will reach a slower 3.7 per cent, which is below the global average of 4.3 per cent and also less than the Latin American average of 4.1 per cent.

The government achieved a primary budget surplus of 4.6 per cent of GDP in 2004, however, its public debt remains at a high level which increases the vulnerability of the Brazilian economy to external shocks, according to IMF officials.

The IMF also forecasts that inflation will exceed the central bank’s target rate of 5.1 per cent by 1.4 percentage points. To combat upward-trending inflationary pressures, COPOM has continually raised the benchmark interest rate which now stands at 19.25 per cent, the highest policy rate in the world.

The Brazilian currency, the real traded at its highest in 34 months against the US dollar, rising 0.4 per cent to 2.5565 per dollar on April 13. The most traded emerging market security, the Brazil 2040, fell to 114.35, boosting its yield to 9.57 per cent on the same day.

International markets

The US budget deficit narrowed to $71.2 billion in March. The firming US economy generated higher tax yields, as government receipts rose 12 per cent last month to $148.7 billion, while spending increased 7.1 per cent to $220 billion.

For the fiscal year 2004, the US recorded a budget deficit of $412.8 billion, while the shortfall for the first half of the new fiscal year was at $294.6 billion, down from $301.4 billion for the same period last year.

Meanwhile, the country’s trade deficit rose to a record $61 billion in February as oil prices surged and demand for Chinese textiles increased.

This 4.3 per cent increase compares to the 5 per cent rise in January to $58.5 billion. The 1.6 per cent rise in imports to $161.5 billion was led by import of industrial goods and materials. Exports increased 0.1 per cent to a record $100.5 billion.

International currencies

The US dollar rebounded last week as the IMF lifted its growth forecast for the US while cutting those for Germany and Japan. Relative to the yen, the US dollar traded at 107.92 from 107.36 and against the euro, it rose to $1.2832 per dollar from $1.2914. Against the euro, the dollar is up 0.5 per cent for the week so far, while for the first three months of 2005, it is up 5.5 per cent and against the yen, it has advanced 5.1 per cent.

The IMF raised its forecast for 2005 US growth to 3.6 per cent, with Germany and Japan lagging behind with expected growth rates of 0.8 per cent.

Interest rates in the G-3 countries are also skewed, with the US benchmark rate at 2.75 per cent and expected to increase further, the euro rate at two per cent and borrowing costs at almost zero in Japan.

©2004-2005 Trinidad Publishing Company Limited

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