Sep 2005 Financial News

Central Bank ups repo rate to 5.75%

Sep 26, 2005

The Central Bank of Trinidad and Tobago has increased the "Repo" rate by 25 basis points from 5.50 per cent to 5.75 per cent with effect from September 23.

The Bank stated in a release yesterday that "this decision has been taken against the background of relatively high liquidity in the domestic economy, further narrowing in the differential between TT and US short-term interest rates and signs of persistent inflationary pressures."

The latest available data released by the Central Statistical Office indicate that headline inflation, which measured 7.3 per cent to August 2005 (year-on-year), was relatively unchanged from the previous month. Core inflation, which had been relatively steady for the past four months at around 2.6 per cent, inched up to 2.7 per cent in the 12 months to August 2005. The increase in core inflation was largely in the medical goods and services category.

The Bank sated that liquidity conditions have remained relatively high in the domestic financial system and to absorb this liquidity, the Bank said it has continued to increase its open market operations.

Central Bank executives have given credit to the private sector, which they believe had been levelling off earlier in the year, increased sharply by 17.1 per cent on a year-on-year basis to July 2005 from 9.3 per cent a year earlier. Consumer credit, which grew by 27.4 per cent year-on-year, was the main factor contributing to this expansion.

The recent increase in the Fed Funds rate has caused the spread between US and TT short-term rates to narrow to 1.4 per cent compared with 3.1 per cent in August 2004. This reduction in the spread is making it more convenient for some firms to borrow locally to fund their acquisition of foreign assets.

This factor is contributing to the increasing demand for foreign exchange. The Bank has been supporting the foreign exchange market through increased sales. Following discussions with the commercial banks, the Central Bank is now selling foreign exchange on pre-determined dates in order to provide greater certainty to the market.

The Bank said it will continue to monitor developments in the external and domestic markets and will keep monetary conditions under close review. The next "Repo" rate announcement is scheduled for October 21 this year.

The Trinidad Express
Saturday, 24th October, 2005
http://www.trinidadexpress.com/index.pl/article_business?id=103769759