Nov 2007 Financial News

CENTRAL BANK MAINTAINS ‘REPO’ RATE AT 8.0 PER CENT

Nov 30, 2007

The latest data released by the Central Statistical Office indicate that headline inflation measured 7.3 per cent (year-on-year) in October 2007, the same rate as in the previous month. Food prices, the main stimulus to headline inflation, registered a year-on-year increase of 16.6 per cent in October from 14 per cent last month.

On a monthly basis, food prices rose by 2.4 per cent – the second largest increase for the year to date. The main contributors to food inflation were increases in the prices of bread and cereals (8.3 per cent), meat (15.6 per cent), vegetables (19.9 per cent), fish (19.9 per cent) and milk, cheese and eggs (22.2 per cent). The data also show that there were slower price increases for fruit (30 per cent compared with 32.8 per cent in September) and sugar and sugar-based products (5.6 per cent compared with 6.4 per cent).

Core inflation which had been hovering between 4.5 and 4.6 per cent for the last five months fell by a percentage point (the largest recorded decline for the year) to 3.7 per cent in the twelve months to October 2007. More subdued increases in the cost of transportation, housing services, health services and in the prices of alcoholic beverages and tobacco contributed to a lower core inflation rate. By contrast, the sub-indices for Education and Hotels, Cafes and Restaurants posted year-on-year increases of 14 per cent and 14.4 per cent, respectively.

Net fiscal injections rose sharply in October and November but liquidity in the financial system was kept relatively tight as the Bank withdrew TT$2.4 billion in November through open market operations and foreign exchange sales. Notwithstanding this significant liquidity absorption, bank credit is still expanding at a relatively uncomfortable pace. In the twelve months to September, bank credit expanded by 21.1 per cent compared with 19.4 per cent in the previous month.

The sharp increase in bank credit partly reflects a significant upsurge in consumer credit especially for the purchase of motor vehicles and for home renovation.

Inflation control will continue to pose challenges for the remainder of the year especially in light of high energy prices, rising food inflation in global markets and recently announced domestic price increases. The probability of attaining an end-year inflation target of 7.0 per cent therefore remains delicately balanced.

The Bank is committed to maintaining a tight monetary policy with a strong focus on liquidity absorption so as to limit domestic demand and credit expansion.
Against this background, the Bank has decided to maintain the current “Repo” rate at 8.0 per cent while keeping monetary conditions under close review.

The next ‘Repo’ rate announcement is scheduled for December 21, 2007.

Source;
The Central Bank of Trinidad and Tobago
November 30, 2007.