[A-List] Venezuela Bank Says 2008 Inflation Goal 'Difficult'

["Yoshie Furuhashi" <critical.montages@xxxxxxxxx>]

<http://www.bloomberg.com/apps/news?pid=20601086&sid=aHwC4e.scFuY&refer=latin_america>
Venezuela Bank Says 2008 Inflation Goal `Difficult' (Update1)

By Matthew Walter and Jose Enrique Arrioja

Dec. 21 (Bloomberg) -- Venezuela's goal of reducing its inflation rate
to no more than 12 percent next year will be "difficult,'' and may
require policy makers to increase interest rates, central bank
director Armando Leon said.

The bank will "continue reviewing'' rates on deposits and reserve
requirements for banks in a bid to keep consumer spending and
inflation in check, Leon said.

"We're going to have to make a big effort,'' Leon, 46, said in an
interview at his office in downtown Caracas. "We're going to maintain
a system of reviewing interest rates in 2008.''

Venezuela's inflation rate, the highest in Latin America, will decline
next year as government spending moderates, bank lending growth slows
and new policies ease food shortages, Leon said. Consumer prices are
rising because of an increase in demand driven by bigger welfare
payments, more hiring, housing construction and purchases of autos and
other big-ticket items.

Inflation accelerated to 20.7 percent in November, above the
government's goal for next year of 9 percent to 12 percent.

A new currency called the strong bolivar will simplify prices, another
part of the central bank's inflation-fighting strategy, Leon said. The
currency will be pegged at 2.15 per dollar, compared with the
bolivar's current value of 2,150 per dollar.

"The monetary conversion is a step in the direction of greater
stability, but by itself it isn't an anti-inflationary measure,'' he
said.

Shift

The central bank lifted interest rates twice in 2007 to encourage
savings, and earlier this month it announced that commercial lenders
will be able to deposit reserves for dollar- denominated holdings in
bolivars, instead of using dollars, starting Jan. 21, which will help
soak up excess cash in the $200 billion economy.

The overnight lending rate has also risen in recent weeks, in response
to the government's policy of slowly shifting its deposits away from
private banks and into state-owned financial institutions, Leon said.

"Private banks are going to have to redirect their focus in attracting
deposits,'' the central bank director said.

Leon said the economy will likely expand "near 9 percent'' this year,
and will continue to grow next year as the country benefits from
near-record prices for oil, its top export. Venezuela is the biggest
oil exporter in South America.

"In the next three to five years, we will have reached a per-capita
gross domestic product that we had in the 1970s, the highest historic
levels of the indicator we have,'' Finance Minister Rodrigo Cabezas
said today in a presentation in Caracas.

Cabezas said economic growth likely accelerated in the fourth quarter
to 8.8 percent, and that consumer prices will likely rise 18.3 percent
this year.

The finance minister also reiterated that the government will continue
to relax price controls on food items next year to attract more
investment in production and ease shortages.

To contact the reporter on this story: Matthew Walter in Caracas at
mwalter4@xxxxxxxxxxxxx ; Jose Enrique Arrioja in New York
jarrioja@xxxxxxxxxxxxx .
Last Updated: December 21, 2007 14:20 EST

-- 
Yoshie
<http://montages.blogspot.com/>