Dec 2006 Financial News

Central Bank admits measures failing

Dec 07, 2006

Central Bank Deputy Governor, Joan John, yesterday highlighted the failure of certain measures aimed at reducing liquidity due to “contrary” forces in the economy, adding that there was no certainty that the targeted five percent inflation rate would be attained.

John was speaking at a press conference at the Central Bank. The conference addressed the recent $700 million bond issue and its implications.

When asked by reporters about the overall impact of monetary policies in 2006 John said, “The repo rate works insofar as consequent to the repo rate announcement you have seen interest rates moving up.

“However, you have also seen liquidity continuing to be out there. We take out liquidity and it goes back out there. It is a very dynamic environment, so things are happening that assist and things are happening that are contrary and it is that dynamic environment... where did we end up at the end of the day. At the end of the day we still find that there is too much liquidity out there.”

She continued, “The bank doesn’t use one measure the bank uses the range of policy instruments that it has in order to do this. Each month we look at the macro-economic information that is available, we look at the inflation numbers and we take appropriate monetary policy action in that light. So that no one activity is going to solve the problem. But it is one of the tools we are using to address inflation.” When asked about the Central Bank’s aim of having inflation at seven percent by 2007 and five percent in 2008 John said that no one would be in a position to say whether the goal would definitely be attained.

The Deputy Governor then explained that the high level of liquidity in the system has left the recent increase in the repo rate (the overnight rate at which commercial banks can borrow from the Central Bank) relatively ineffective and the recent bond issue is intended to , “curb the amount of credit and demand which can impact on inflation.”

The total value of the bonds applied for in the most recent bid was $1.1 billion and the $700 million in bonds was issued at a price of $99.13 to 20 successful bidders. John noted that of the 230 initial bidders 188 were individuals. She referred to this as a positive, “greater interest from John Public.” John also expressed the Central Bank’s intention to produce a number of leaflets, as was done in 2004, regarding the automated bond system. However based on the fact that some found these to be geared to “more sophisticated investors”, new, more simple, leaflets are soon to be released.

Mark Lawrence
Newsday
Thursday, December 7, 2006.
http://www.newsday.co.tt/news/0,48801.html