Jun 2011 Financial News

Inflation drops to 3.9 percent

Jun 25, 2011

Headline inflation continued its decline for the fifth consecutive month to 3.9 percent in May from 6.4 per cent in the previous month. It is now at the lowest level since January 2010 when the rate measured 3.7 percent.

The Central Bank noted core inflation measured 1.3 percent with the recovery in credit gaining steady momentum and with underlying inflationary pressures remaining well contained for the time being, the Bank has decided to maintain the Repo rate at 3.25 percent.

According to the latest repo rate announcement yesterday, the marked slowdown in headline inflation was due, in large measure, to the sharp decline in food inflation which fell to 8.2 percent in May from 15 percent in April.

This decline reflected the “base effect” associated with the surge in food prices in May 2010 as well as the one percent decline in food prices during the month of May 2011. On a monthly basis, the fall in prices in May for fish (-6.7 percent), vegetables (-2.5 percent) and sugar and confectionery products (-0.2 percent) compensated for price increases in other major food groups such as oils and fats (2.9 percent), fruits (4.8 percent), bread and cereals (0.6 percent) and meat (0.4 percent).

The Bank said it continues to be cautious about the outlook for domestic inflation given the steady increase in the global price of some key grains such as corn and soya meal which are major inputs in some main domestic food groups such as dairy products and poultry.

Over the last four months, credit conditions in the financial system have shown incipient signs of a weak recovery. In the12 months to April 2011, private sector credit extended by the consolidated financial system fell by 0.8 percent (year-on-year) following declines of 1.4 percent in March and 2.3 percent at the start of the year. Within the financial sector, commercial bank lending to the private sector rose by 1.6 percent in April (year-on-year) while credit extended by non-bank financial institutions recorded a 13.3 percent decline.

Both consumer credit and real estate mortgage lending have been the major drivers behind the improvement in overall credit, growing by relatively robust rates of 6.7 percent and 8.8 percent, respectively in the twelve months to April 2011. Business lending still remains relatively sluggish and declined for the eighteenth consecutive month by 5.9 percent.

In recent months, lower net fiscal injections along with the liquidity absorption measures employed by the Central Bank have helped to reduce liquidity in the financial system. In June, actions by the Central Bank in the government securities and foreign exchange markets withdrew approximately $125 million from the financial system.

Commercial banks’ excess reserve balances at the Central Bank have averaged $1.3 billion in June so far compared with $2 billion in December 2010. As liquidity conditions tightened, some commercial banks tapped the inter-bank market as well as the Repo window at the Central Bank to meet their short-term funding requirements.


Source:
Newsday
Saturday June 25, 2011

http://www.newsday.co.tt/business/0,142847.html