Latin America economic analysis – week of August 22, 2005

Latin America economic analysis – week of August 22, 2005

Mexico’s central bank cut interest rates in an effort to boost economic growth. Banco de Mexico cut the overnight benchmark rate to 9.5 percent from a 29-month high of 9.75 percent. Mexico’s monetary policy has succeeded marvelously at controlling inflation but it has brought economic growth to a crawl. The central bank feels inflations has been adequately reigned in and is expected to continue to cut rates to nine percent by year’s end. The Mexican peso fell 0.3 percent against the dollar to cut its yearly gains to 2.9 percent. Chile believes its economy will grow about six percent next year; it is the third straight year of such growth. Chile’s gross domestic product grew about 6.1 percent and should commodity prices continue their torrid pace, its budget surplus could surpass 3 percent of its total GDP. Meanwhile, Argentina also reported it expects its economy to grow about six percent next year after two consecutive years of eight percent growth. The Argentine government expects inflation to continue to rise this year but has decided not to raise interest rates in order to encourage further economic growth. In stock news Tenaris SA gained 2.1 percent on Friday and 11 percent for the week. The company has recently announced it will increase its pipe sales to oil companies for exploration. The Argentina peso fell 0.1 percent against the dollar. Today Brazil’s main stock index, the Bovespa retreated after steelmaker Gerdau SA reported that lowered steel prices will erode its profit margins. Gerdau fell 2.3 percent and Usiminas fell 1.2 percent. Earlier this week, the Bovespa had gained 2.6 percent on testimony by an aide to Finance Minister Antonio Palocci that accusations he leveled against Mr. Palocci were based on information he received from a friend who has since died. Since assuming control of Brazil’s financial future, Palocci has seen the Bovespa double and the currency gain 45 percent against the dollar. The Bovespa also gained on news that Brazil’s central bank will most likely cut interest rates starting next month. All in all, however, it was a sour week for the index noting declines for the past three days out of four. Finally, earlier this week the Brazilian Steel Institute announced that Brazil’s year-on-year crude steel production dropped 12.5 percent in July to 2.45 million metric tons. Flat rolled output was down just over nine percent to 1.79 mmt. Year-to-date crude steel production was down almost three percent to 18.4 mmt compared to 19 mmt for the same period in 2004.