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Emerging Markets Weekly

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Brazil's central bank for the first time sees 2008 inflation rising above its annual target of 4.5 percent

Mon, Mar 31 2008, 07:39 GMT
by Erste Bank Bond Research Team

Erste Bank der oesterreichischen Sparkassen AG

LATIN AMERICA

Argentina

Thousands of Argentines banging pots and pans took to the streets of Buenos Aires to back a strike by farmers in the biggest protest against the 3-month-old government of President Cristina Fernandez de Kirchner. Protesters supporting farmers opposed to higher export taxes surrounded the obelisk on the capital's main road and massed in the Plaza de Mayo, in front of the presidential palace. Pro-government supporters, some carrying sticks, faced off against the crowd hours after Fernandez criticized farmers for their two-week strike, saying they have ``abundant'' profits.

Brazil

Brazil's central bank for the first time sees 2008 inflation rising above its annual target of 4.5 percent, boosting speculation the monetary policy board may raise interest rates in the months ahead to rein in prices. Policy makers increased their inflation forecast for this year to 4.6 percent from 4.3 percent, a report published on their Web Site showed. The bank also increased this year's growth forecast to 4.8 percent from 4.5 percent.

Colombia

Colombian Finance Minister Oscar Ivan Zuluaga said signs that inflation is slowing may sway the central bank to leave its benchmark lending rate unchanged at its board meeting March 28. Zuluaga, who represents the government on the seven-member board, said economic figures for March show ``more favorable'' prices for food and that's ``a good sign for the discussion we will have on Friday.'' Higher energy and food prices have stoked inflation. Fifteen rate increases in the past two years are helping to contain prices, Zuluaga said in a Bloomberg Television interview.

Peru

Peru's government aims to ``aggressively'' reduce foreign debt this year in a bid to earn an investment-grade credit rating, Finance Minister Luis Carranza said. Peru plans to pay $1.1 billion of World Bank and Inter- American Development Bank debt ahead of schedule, from July through September. It's the Andean country's third debt operation this year, Carranza said in a Bloomberg Television interview. President Alan Garcia's government took advantage of surging economic growth, low inflation and the strongest exchange rate in a decade to retire and buy back almost $1.4 billion in debt earlier this year.

Venezuela

Venezuela will soon impose a new tax on oil companies aimed at recouping a larger share of their rising profits, President Hugo Chavez said. The new levy will be a tax on "unexpected earnings" generated by the steep rise in world oil prices, Chavez said. His administration has readied a bill outlining the new tax - although he said it has not yet determined what the tax rate will be.

AFRICA & MIDDLE EAST

Egypt

Egyptian President Hosni Mubarak won't attend the March 29-30 summit of Arab League heads of state in Syria, with a Cabinet minister heading Egypt's delegation in his place. Legal and Assembly Affairs Minister Moufid Shehab will represent Egypt at the meeting in Damascus, Hossam Zaki, a spokesman for the Egyptian Foreign Ministry, said in a telephone interview. A political deadlock in Lebanon between the pro-Syrian opposition and the pro-Western government has strained relations between Syria and some Arab states, threatening the success of the summit.

Lebanon

Moody's Investors Service on Tuesday raised its ratings outlook on Lebanon to stable from negative, saying the country's public finances have remained resilient in the face of numerous political shocks. The ratings agency said Lebanon's sovereign ratings B3 local and foreign currency bond ratings were likely to withstand several political volatility. "In fact, the health of the country's public finances has improved modestly during this period and the government's short-term funding needs are manageable," Moody's said in a statement. Moody's assigned Lebanon a negative rating outlook in November 2006.

South Africa

South Africa's power shortage, while constraining the country's growth prospects, shouldn't affect its overall credit ratings, Standard & Poor's said. South Africa has a credit rating of BBB+, the third-lowest investment grade, from S&P. On Jan. 11, the New York-based ratings company indicated it may reduce its rating on South Africa's state- owned electricity utility Eskom Holdings Ltd. ``We have a stable outlook on South Africa's rating,'' Konrad Reuss, S&P's managing director for southern Africa, said in a telephone interview from Johannesburg.

Zimbabwe

Zimbabwe's opposition MDC and ruling ZANU-PF were running neck-and-neck, according to the first election results issued by the Electoral Commission on Monday. The commission started announcing the results from Saturday's election shortly before 7 a.m. (0500 GMT) after a long delay prompted the opposition to accuse President Robert Mugabe of trying to rig the vote to stay in power. The first six parliamentary constituencies were evenly split between Mugabe's ZANU-PF and Morgan Tsvangirai's Movement for Democratic Change (MDC), said the commission. Riot police appeared on the streets of Zimbabwe's capital overnight and the staterun Herald newspaper accused the MDC of "preparing its supporters to engage in violence by pre-empting results, claiming they had won". Mugabe, 84, faced the biggest test of his 28-year-rule in the election because of Zimbabwe's economic collapse and a two-pronged opposition attack that put him under unprecedented political pressure. He is being challenged by veteran rival Tsvangirai and former finance minister and ruling ZANU-PF party official Simba Makoni. Both accuse the former guerrilla leader of wrecking a once prosperous economy and reducing the population to misery. Although the odds seem stacked against Mugabe, analysts believe his iron grip on the country and backing from the armed forces could enable him to declare victory.

ASIA

Indonesia

Bank Indonesia doesn't see the need to increase its key interest rate at its meeting next month even as inflation is accelerating, the central bank's Senior Deputy Governor Miranda Goeltom said. ``Inflation is accelerating not because of an excess in money in circulation,'' Goeltom told reporters in Jakarta.

Philippines

The Philippines may sacrifice its plan to end a decade of budget deficits to boost growth amid a U.S. economic slowdown, and increase farm production amid rising food prices. The government needs to boost infrastructure spending ``to sustain growth,'' Budget Secretary Rolando Andaya told reporters at a conference at Clark, about 40 kilometers north of Manila. The government will boost spending on rice seeds to increase production, Andaya said. These ``may threaten'' the balanced-budget goal.

EMERGING EUROPE & CIS

Georgia

Fitch Ratings on Friday affirmed Georgia's BB- rating and stable outlook, saying the ratings were supported by a moderate government debt burden and dynamic growth. Fitch said in a statement that the growth was "propelled by an impressive record of structural reforms and massive foreign direct investment inflows" in the five years to 2007. However, Fitch said that Georgia's external finances were a ratings weakness, estimating the current account deficit at 20 percent of GDP in 2007. The ratings agency also said political risks were a "material constraint" on the ratings, and that "instability could persist with potential adverse consequences for investor confidence, capital inflows, economic policy and the credit outlook".

Iceland

The head of Iceland's central bank, which hiked rates between meetings this week to shore up a sliding currency, said on Friday the country was suffering an attack on its financial system. In a speech published on the central bank's Web site, central bank chief David Oddsson said dishonest brokers were behind problems being faced by the North Atlantic island. "The assault now directed at Icelandic banks and the government smells, it smells of dishonest brokers making a final attempt to tear the Icelandic financial system down," he said in the text of the speech given at the central bank's annual meeting. The cost of insuring against default by domestic banks Kaupthing and Glitnir soared on Friday with five year credit default swaps above 1,000 basis points as worries about the financial system's ability to cope with the global credit crunch and domestic economic problems weighed. The Icelandic crown fell nearly 3 percent against the euro to 122.85 and against the dollar to 77.96 after data on Friday showed annual inflation at its highest level since March 2002. Iceland's currency has lost over 20 percent of its value since the start of the month in a flight to quality as a global credit crunch, sparked by problems in the U.S. mortgage sector, bites. The central bank lifted rates by 125 basis points earlier this week to a record 15 percent and has taken other measures to boost the currency, but with limited success so far.

Russia

Moody's placed Russia's "Baa2" government bonds and the "Baa2" country ceiling for foreign currency deposits on review for possible upgrade on strong macroeconomics and on the likelihood of macro-policy continuity under President-elect Dmitry Medvedev. Russia's "A2" foreign-currency country ceiling for bonds and the "A1" country ceilings for local-currency bonds and deposits are affirmed with a stable outlook. Moody's said in a statement the review will concentrate on the sustainability of Russia's healthy economic performance over the medium term in spite of anticipated large reductions in both the current account and government budget surpluses.
Russia is set to lift a 1 1/2 year ban on shipping and postal links with Georgia after direct flights between the two countries resumed on March 25. A first Russian passenger ship, the ``Mikhail Svetlov,'' will make the 12- to 14- hour trip from Sochi, the Russian Black Sea resort city that will host the 2014 Winter Olympics, to the Georgian port of Batumi as soon as weather permits, Nugzar Katamadze, a spokesman for the Batumi port authority, said by telephone.

Ukraine

Moody's Investors Services said on Friday it had placed Ukraine's key sovereign ratings under review for a possible upgrade, citing the country's maturing political system and current economic policies. The ratings agency said it could raise Ukraine's "B1" foreign-currency and local-currency debt ratings and affirmed the country's Ba3 foreign-currency ceiling. "Although noisy, the political system has matured in the 3-1/2 years since the Orange Revolution," Moody's Vice President Jonathan Schiffer said in a statement. Moody's also put up for review 22 Ukrainian banks including UniCredit's Ukrsotsbank, Alfa Bank Ukraine of Russia's Alfa group, ING's Bank Ukraine, OTP's Bank Ukraine, Raiffeisen's Bank Aval and Swedbank's Ukrainian banks.
Ukraine's government plans to set price controls on key food products to battle inflation which topped 16.6 percent last year, according to a draft proposal posted on the government's Web site on Wednesday. Analysts have feared that the government of Prime Minister Yulia Tymoshenko will turn to quick-fix solutions such as price controls, as it did during her previous tenure in 2005. The draft proposes to limit retail prices to 15 percent above wholesale prices excluding transport costs, on flour, bread, pasta, groats, sugar, beef, pork, poultry, sausages, milk, cheese, sour cream, butter, sunflower oil and eggs. It also aims to limit profits of producers of flour and bread to 12 percent above costs. "The realisation of the plan creates conditions for stopping any unjustified rise in prices for socially important food prices on the domestic market," the draft proposal says.

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Published on  Mon, Mar 31 2008, 07:45 GMT