Vangie Bhagoo & Stacey Ramjattan
the week ending April 22
Trinidad and Tobago
Commercial banks have started to implement a 25 basis points
increase in the TT prime lending rate to nine per cent from
8.75 per cent.
This was in response to the Central Banks decision to
raise the benchmark repo rate to 5.25 per cent in March 2005
after leaving it at five per cent since September 2003 in
light of inflationary buildup. According to the bank, the
repo rate increase signals a rise in short-term borrowing
since it is the rate at which CBTT provides overnight liquidity
to the banking sector.
Commercial banks last adjusted the prime lending rate last
year when the second phase of the reserve requirement reduction
The reserve requirement was lowered to 11 per cent from 14
per cent in October last year. This subsequently led to a
decline in the prime lending rate to 8.75 per cent from 9.50
per cent. The final phase of the reduction is expected sometime
this year, when the cash reserve requirement will be reduced
to nine per cent, the same rate as non-banks.
On April 15, the Central Bank issued an OMO (issue size $140
million) at an average discount rate of 4.92 per cent which
will mature on December 30. Also on that day, T-Note 1-22
($160 million) matured.
The Central Bank issued another OMO on April 19, in an amount
of $135 million at a rate of 4.98 per cent, expected to mature
March 31, 2006. Additionally, a one-year T-Note was issued
with a coupon of 5.25 per cent amounting to $55 million.
After a day of rioting in the capital city of Quito, President
Lucio Gutierrez has been ousted and vice-president Alfredo
Palacio inaugurated as the new president. This is Ecuadors
third presidential overthrow in eight years. Gutierrez was
accused of nepotism when he tried to fix the Supreme Courts
decision on corruption charges against a former president.
He also failed to secure congressional approval on bills to
renew an IMF loan agreement and came under further pressure
for not fulfilling campaign promises such as a reduction in
On the international markets, Ecuadors 2012 bond closed
at a low of 97 with a yield of 12.624 per cent on April 20
compared to a price of 100.951 and yield of 11.803 per cent
the day before.
Uncertainty about short-term and medium-term economic management
as well as the highly volatile political environment has prompted
Standard and Poors to place the country on credit watch,
with negative implications. S&P believes that Ecuador
would experience increased difficulties in honoring its imminent
principle and interest obligations. The countrys long-term
sovereign credit rating currently stands at B-.
The monetary committee of the Brazilian Central Bank defied
market expectations and once again raised the benchmark interest
rate by a quarter-percentage point to 19.50 per cent. The
market was expecting Copom to leave the rate at 19.25 per
This is the eight consecutive month that Copom has increased
the Selic. In the minutes of the last meeting, it was indicated
that Copom might have halted interest rate increases on the
basis that inflationary threats had subsided and the Brazilian
economy was at no risk of heating up.
The IPCA consumer price index rose 0.61 per cent in March,
up from a 0.47 per cent rise the same month last year. Year-on-year,
the IPCA rose 7.54 per cent in March, making it increasingly
difficult for the central bank to meet its inflation target
rate of 5.1 per cent.
Meanwhile, the public debt situation has worsened due to the
hikes in the Selic rate. Public debt has increased by almost
eight per cent in the first quarter of 2005 and now stands
at R$872.61 billion (US$335.24 billion). For the month of
March alone, the governments debt rose by R$28.22 billion
(US$10.85 billion), of which half is attributable to the interest
The Dominican Republic has launched its exchange offer for
its global bonds. The proposed restructuring was largely in
line with market expectations; the authorities also ordered
the payment of the late coupon on its 2006 bond, which has
prevented a default less than one week before the end of the
The main features of the exchange proposal include maturity
extension and the temporary capitalisation of interest. Maturities
on the new bonds will be five years longer and there will
be no principal haircut and no coupon reduction on the new
bonds. They will also be inclusive of collective action clauses.
The exchange offer expires May 4.
Following the announcement of the bond exchange, S&P downgraded
the rating on DRs 2006 and 2013 bonds to D, from CC.
Once the expected new bonds are issued and the commercial
bank debt is restructured, S&P should raise its credit
ratings on Dom Rep most likely to B.
US consumer prices jumped to 0.6 per cent in March, while
core inflation rose 0.4 per cent- representing the biggest
gain in more than two years. The increase in core inflation
suggests that companies were able to pass on rising costs
of fuel and materials to consumers.
The March increase in consumer prices follows a 0.4 per cent
increase the previous month. Year-on-year, all consumer prices
rose 3.1 per cent, compared with three per cent in February.
Core inflation for the 12-months ending March 2005 was 2.3
per cent, slightly down from 2.4 per cent for the 12-months
that ended February.
The US 10-year Treasury note fell after signs that inflation
has not yet stabilised in the US economy, falling to 97.75,
with a yield of 4.28 per cent.
Economic growth in China continues to outperform the rest
of the world as the economy grew 9.5 per cent in the first
quarter of 2005 attributed to a surge in exports and investments.
Fixed-asset investments rose 23 per cent in the same period,
which can create shortages of oil, electricity and other essential
commodities and services.
Chinese inflation averaged 2.8 per cent in the first quarter,
well below the governments limit of four per cent, while
producer prices increased 5.6 per cent.
The US dollar advanced in the last week with the release of
US consumer prices, which had the biggest gain since October
last year, and after an index of regional manufacturing unexpectedly
increased. The rise in consumer prices may support speculation
that the US Fed will continue with its monetary stance in
raising its benchmark interest rate. Against the euro, the
dollar traded at $1.3056 on April 21 and remained stable against
the yen at 106.88 from 106.84 previously.