Dec 2014 Financial News

T&T raises repo rate again

Dec 02, 2014

The Central Bank of T&T has once again raised the repo rate by 25 basis points, bringing it to 3.25 per cent yesterday, just months after raising the repo rate by the same margin in September.

Central Bank Governor Jwala Rambarran, at a Monetary Policy Forum in Chaguanas yesterday, said: “You’ve seen the monetary policy stance changing which means once we start to improve the appeal of TT dollar assets, there will be a greater level of attractiveness of those assets, and that means funds could start to stay home rather than go outside of T&T to search for higher yields.”

Rambarran also cut the country’s projected gross domestic product (GDP) growth rate for 2014 to 0.5 per cent from over 2 per cent “on dismal energy sector performance,” saying gas producers BP and BG continued to have disruptions in supply mainly due to maintenance and planned shutdowns.

Taking reporters questions after his presentation, when asked about only one bank taking the cue from the Central Bank to raise its interest rates, Rambaran said: “We expect to see an adjustment from the commercial banks in terms of their interest rate structure. What we have to bear in mind is that the repo rate is a signalling rate, so it tells you what we would like to see.

“Second, we have an excess liquidity overhang, so a 25 basis points increase in the repo rate is not going to fundamentally affect the assets and liabilities structure of the bank.”

Asked by when he estimated to see more banks raise interest rates, Rambarran said that depends on each bank and what their balance sheet can handle. He said he does not anticipate the banks will disregard the signal.

“Interest rates are going to move from historical lows and gradually increase,” he said.

Inflation climbed to a two-year high at 9 per cent in October, Rambarran confirmed: “To guard against further inflationary pressures going down the road.”

He said the Central Bank was changing the repo rate, the effect of which is usually not seen before nine months.

Asked if T&T could see double-digit inflation going forward, he said it is “quite possible that food prices will go up,” for the upcoming Christmas season, and double-digit inflation could occur. Rambarran said he expects the Ministry of Finance and the Economy “to cut expenditure to match shortfalls in energy revenue” as a prudent measure in the face of falling oil prices.

“That would help with liquidity in the system,” he said.

Fiscal spending accounts for 37 per cent of GDP according to RBC Caribbean research released November 26.

Asked why the US$1.0174 billion proceeds from the sale of CL Financial’s stake in MHTL are being counted in foreign reserves, bolstering the latter to climb to over US$11 billion, Rambarran said: “The bank couldn’t hold that amount of US dollars because it would have actually hit all its exposure limits.”

He said the aim was “to prevent the bank from breaching all exposure limits, and to sterilise the impact of that amount of USD money coming into the system.”

After faulting debt maturities for much of the $8 billion liquidity now in the country’s financial system, Rambarran said government will be returning to market with a $440 million bond issue, a continuation of “the August last year issue.” The government’s August 2013 $1 billion bond issue was under-subscribed.

Asked why the deficit is being financed with bonds again if upon maturity they add liquidity to the system he said: “When you issue the bond, you actually take liquidity out the system, so it helps. When the bond matures then liquidity is put into the system, and we have a programme of open market intervention. We know when the bonds will mature, and therefore we programme to neutralise that particular liquidity impact by issuing open market bills.”

Source:
ALEEM KHAN
Trinidad Guardian, A15
Tuesday December 2, 2014