Apr 2007 Financial News

Central Bank maintains ‘Repo’ rate at 8.0%

Apr 27, 2007

Satisfied that inflation is on the decline, the Central Bank has decided to maintain the Repo rate at the current level of 8.0 per cent.

In a statement yesterday, the bank said headline inflation has maintained its downward trend, slowing to 8.0 per cent in March 2007. The Central Bank observed that this was the fifth consecutive month of decline since the rate peaked at 10.0 per cent in October 2006.

Food prices continued to rise, but at a slower rate in March—increasing year-on-year by 18.8 per cent in March 2007 compared to 19.7 per cent in February.

The bank noted that “In March, there continued to be increases in the prices of fruits and meat while there was a decline in the price of fish.”

The full text of the Central Bank announcement:

According to the latest data released by the Central Statistical Office (CSO), headline inflation continued on a downward trend, slowing to 8.0 per cent in March 2007 (year-on-year).

This is the fifth consecutive month of decline since the rate peaked at 10.0 per cent in October 2006.

Food prices registered a year-on-year increase of 18.8 per cent in March 2007 compared to 19.7 per cent in February.

In March, there continued to be increases in the prices of fruits and meat while there was a decline in the price of fish.

Core inflation nudged downwards to 4.2 per cent in March (year-on-year) from 4.5 per cent in February. Contributing to the fall in core inflation were marginal declines in the prices of clothing and footwear, and pharmaceutical products.

Net fiscal injections into the financial system in the first quarter of 2007 were 45 per cent lower than in the last quarter of 2006.

The Central Bank sought to offset the impact of the fiscal injections through open market operations as well as through the issue of $674 million in government securities during the month of February.

The tighter liquidity environment has led to some slowing in credit growth in the financial system.

Private sector credit by the consolidated financial system declined to 13.6 per cent in the twelve months to February 2007 from 16.7 per cent in February 2006.

Short-term interest rates remained relatively flat in March with the average yields on the three-month and six-month treasury-bill at 6.9 per cent and 7.6 per cent, respectively.

However, underlying inflationary pressures remain strong as evidenced by announced adjustments in transportation fares and a range of basic prices such as bread, eggs and flour.

The Bank will continue to maintain an aggressive liquidity absorption policy in order to dampen domestic demand and contain inflationary pressures.

Against this background, the Bank has decided to maintain the current “Repo” rate at 8.0 per cent.

The Bank will continue to keep monetary conditions under close review.

The next ‘Repo’ rate announcement is scheduled for May 25.

The repo rate is the rate at which the Central Bank provides overnight liquidity to the banking sector.

Source:
Central Statistical Office
Friday 27th April, 2007

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