Jun 2006 Financial News

Repo Rate rises again

Jun 26, 2006

THERE HAS been no slowdown in the mounting inflation rate, as for yet another month it has climbed to a new level, forcing the Central Bank in the process to raise the Repo Rate for a consecutive month by another 25 basis points, to 7.25 per cent.

And to stem additional inflationary haemorrhage, the Central Bank (CBTT) has also withdrawn $500 million from the banking system through a special interest-bearing deposit which is to be lodged at the CBTT for a minimum of one year.

Last year, $1 billion was also withdrawn from the system.

Also on the increase was headline inflation which climbed to 7.97 per cent on a year-on-year basis from 6.90 per cent at the end of the previous month.

Attributed to the hike is the increase in food prices, which measured 19.4 per cent in April, but accelerated to 22.8 per cent at the end of May 2006.

According to Central Bank's statement issued yesterday: "Contributing to the jump in food prices were increases in the prices of vegetables 71.6 per cent, fruit 21.5 per cent, fish 20.6 per cent and root crops 110.6 per cent.

"Given that inflationary pressures have begun to emerge in the US, steep increases in the Fed Funds rate are expected to continue-it is therefore important that measures be taken to ensure that the differential between TT and US short-term interest rates, which is already at a minimal level, is not further eroded."

Core inflation it said increased at a slower rate from 3.09 per cent year-on-year in April to 3.42 at the end of May.

And surmised that its increase was influenced by spikes in the cost of health services, housing and rents.

It added: "Moreover, high energy prices, which have started to affect prices in global markets, have also begun to influence inflationary expectations locally."

With recent increases in the Repo Rate, banks have also followed suit raising the base lending rate, as was the case at the end of May, when it to was increased by 25 basis points to 10.75 per cent.

University of the West Indies lecturer and economic analyst, Dr Dhanayshar Mahabir last year indicated that we should expect a steady increase in the lending rate projecting an increase to 13 per cent.

Mahabir yesterday surmised that the Central Bank should raise the Repo Rate by larger margins, suggesting a margin of 50 basis points in each bout, effecting better results.

Roxanne Stapleton
The Trinidad Express
Saturday, June 24, 2006.
http://www.trinidadexpress.com/index.pl/article_business?id=160972716