Mar 2015 Financial News

Central Bank increases repo rate again

Mar 31, 2015

The Central Bank has announced the fourth consecutive increase in the repo rate. The decision to increase it by 25 basis points to 3¾ per cent was made at the March meeting of the Central Bank’s Monetary Policy Committee. 

There will also be a continuation of the agressive programme to absorb excess liquidity to strengthen the impact high interest rates will have throughout the financial system.

These decisions were based on recent forward guidance from the US Federal Open Market Committee (FOMC) on the medium-term path of US monetary policy, the potential for higher domestic inflation in the medium term and the relatively positive growth outlook for 2015.

Based on recent information from the FOMC, markets are expecting the first increase in the US Federal Reserve funds rate to occur between July and September and for US policy rates liely to rise at a gradual pace after that. 

The Central Bank said: “This normalisation of US monetary policy has implications for portfolio capital outflows and foreign exchange demand in Trinidad and Tobago, especially since returns on US dollar assets remain more attractive than TT dollar assets. 

“By mid-March 2015, the TT$-US$ differential on benchmark ten-year Treasuries had narrowed to 64 basis points, from 87 basis points since the end of January 2015. Higher domestic interest rates are necessary to enhance returns on TT$-denominated assets, helping to curb portfolio capital movements out of Trinidad and Tobago.”

In January the MPC noted that the domestic economy appeared to be approaching full capacity. The Central Bank said the situation remained unchanged, although headline inflation slowed for the third consecutive month in February to just over six per cent from nine per cent in November 2014. 

The slowdown in food inflation was due to higher food supply and favourable weather conditions and it contributed to the deceleration in headline inflation. 

However, the Central Bank expects this easing in headline inflation to be short lived, as inflationary pressures are expected to pick up during the rest of the year due to a number of factors.

“Growth of consumer credit remains robust, increasing by nearly 8 ½ per cent in January 2015, suggesting consumers are still willing to spend despite negative sentiment surrounding falling oil prices,” the bank said.

Current and expected settlement of wage negotiations for teachers, civil servants and other public sector workers with considerably large retroactive payments and salary increments will boost consumer spending and further stoke inflationary pressures.”

Government’s spending on its capital programme was up by seven per cent in the first four months of the financial year compared to the corresponding period last year.

In the final quarter of 2014, economic growth was buoyed by further positive momentum in the non-energy sector, even as activity in the energy sector was marred by maintenance work, the Central Bank reported.

Source:
Trinidad Guardian
Saturday March 28, 2015

http://www.guardian.co.tt/business/2015-03-28/central-bank-increases-repo-rate-again