Oct 2006 Financial News

Repo rate up to 8%

Oct 02, 2006

Faced with persistent "inflationary pressures" in the domestic economy, the Central Bank yesterday jacked up the "Repo" rate by 25 basis points to eight per cent and introduced a secondary reserve requirement of 2.0 per cent of the prescribed liabilities of commercial banks aimed at tighten liquidity conditions.

The Bank said headline inflation increased to 9.0 per cent on a year-on-year basis to August, from 8.6 per cent in the previous month.

"Food prices continued to drive headline inflation rising by 24.7 per cent in the 12 months to August. Sharp increases in the prices of fruits (23.4 per cent), vegetables (62.4 per cent) and fish (34.4 per cent were mainly responsible for the rise in food inflation," the Bank added.

According to the Bank, core inflation, which strips out the volatile movement in food prices, slowed to 3.9 per cent after having posted an increase of 4.0 per cent in the 12 months to July 1006.

"There is strong evidence of a marked increase in inflationary expectations. Among the indicators are the recent hike in maxi taxi fares, an increase in the price of bread and, more importantly, rising industrial relations tensions and increasing wage demands. These latter trends are likely to moderate only if it is evident that strong and credible steps are being taken to reduce inflation," it said.

The Bank also indicated that "while any sustained decline in food prices could only be achieved over time, the Bank is committed to using all the available instruments to tighten liquidity, increase the structure of interest rates and dampen inflationary expectations."

As a result, the Bank again increased the "Repo" rate by 25 basis points to eight per cent and introduced, on a temporary basis, a secondary reserve requirement of 2.0 per cent of the prescribed liabilities of commercial banks.

"The secondary reserve is in addition to the existing primary reserve ratio of 11 per cent. Balances held as secondary reserves will be remunerated at an interest rate which is 350 basis points below the Repo rate. The secondary requirement will take effect from October 4, 2006," the Bank said.

The Trinidad Express
Saturday, September 30, 2006
http://www.trinidadexpress.com/index.pl/article_business?id=161022366