Vangie Bhagoo & Stacey Ramjattan
the week ending April 15
Trinidad and Tobago
The Central Bank left its benchmark interest ratethe
repo rateat 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.
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
banks 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
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.
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 countrys 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
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
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.