Latin American economic report week of May 23, 2005
Mexico's currency is the big story this week as the peso falls for the third day in four. Late Wednesday, May 25, the peso fell 0.4% against the dollar to 10.973. Speculation is rife that the central bank may begin cutting interest rates in a response to slowing inflation. Mexican bonds have recently enjoyed a higher yield rate advantage over US bonds. Banco de Mexico has almost doubled the national interest rate since February 2005, from 5.5% to 9.75%. Mexico's rate is nearly triple the US's 3.0%. Brazil's central bank was surprised by a rise in April's consumer prices. They have indicated their intention to raise interest rates once again. Since September 2004, the bank has raised rates 3.75% to 19.75%. It was reported that inflation jumped to 0.87%, an increase from March's 0.61% and a year on year rise from 0.37%. The consumer price increase is troubling to Brazilian economists in light of the strength of Brazil's currency. Overall, the real has strengthened 11% this year and made a 30% gain against the US dollar in the past 12 months. Meanwhile, Chile's currency slipped slightly for the first day in three. Chile's peso fell 0.5% to 582.66 per dollar. Thus far, it fallen 4.8% in 2005 and is projected to further weaken as high oil prices hamper Chile's trade partners' economic growth. Colombia and Argentina's peso changed little 2,330.13 and 2.8855 per dollar respectively.