RBS Cuts Venezuela 2010 GDP Forecast to -4.5% on Currency Rules

By Corina Rodriguez Pons and Jose Orozco

May 24 (Bloomberg) -- Royal Bank of Scotland Plc said Venezuela’s economy will shrink more than it previously expected this year as the government’s takeover of currency trading makes it harder to obtain imports.

RBS now expects Venezuela’s economy to shrink 4.5 percent in 2010 rather than 3 percent, RBS economist Boris Segura wrote in a report. Consumer prices may rise more than the bank expected at an annual rate of 35 percent, up from a previous forecast of 30 percent, the report said.

Venezuela suspended trading of dollar-denominated assets in the local market on May 18. Venezuelans use the parallel market to obtain dollars through the swap of bolivar and dollar bonds through brokerages.

The free-floating currency rate has declined 26 percent this year to 8.2 per U.S. dollar, more than 45 percent weaker than the official rate, as Chavez’s seizure of private companies prompts investors to withdraw capital from the country.

The central bank will create a trading range for the currency and oversee the transactions in a bid to tame inflation and speculation in the market, bank President Nelson Merentes said last week.

“We suspect that a full resumption of imports is likely to take several weeks, with lasting damage on private demand and domestic output,” the RBS report said