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Saturday, May 3, 2025

Central Bank increases repo rate again

by

20150328

The Cen­tral Bank has an­nounced the fourth con­sec­u­tive in­crease in the re­po rate. The de­ci­sion to in­crease it by 25 ba­sis points to 3� per cent was made at the March meet­ing of the Cen­tral Bank's Mon­e­tary Pol­i­cy Com­mit­tee.

There will al­so be a con­tin­u­a­tion of the agres­sive pro­gramme to ab­sorb ex­cess liq­uid­i­ty to strength­en the im­pact high in­ter­est rates will have through­out the fi­nan­cial sys­tem.

These de­ci­sions were based on re­cent for­ward guid­ance from the US Fed­er­al Open Mar­ket Com­mit­tee (FOMC) on the medi­um-term path of US mon­e­tary pol­i­cy, the po­ten­tial for high­er do­mes­tic in­fla­tion in the medi­um term and the rel­a­tive­ly pos­i­tive growth out­look for 2015.

Based on re­cent in­for­ma­tion from the FOMC, mar­kets are ex­pect­ing the first in­crease in the US Fed­er­al Re­serve funds rate to oc­cur be­tween Ju­ly and Sep­tem­ber and for US pol­i­cy rates liely to rise at a grad­ual pace af­ter that.

The Cen­tral Bank said: "This nor­mal­i­sa­tion of US mon­e­tary pol­i­cy has im­pli­ca­tions for port­fo­lio cap­i­tal out­flows and for­eign ex­change de­mand in Trinidad and To­ba­go, es­pe­cial­ly since re­turns on US dol­lar as­sets re­main more at­trac­tive than TT dol­lar as­sets.

"By mid-March 2015, the TT$-US$ dif­fer­en­tial on bench­mark ten-year Trea­suries had nar­rowed to 64 ba­sis points, from 87 ba­sis points since the end of Jan­u­ary 2015. High­er do­mes­tic in­ter­est rates are nec­es­sary to en­hance re­turns on TT$-de­nom­i­nat­ed as­sets, help­ing to curb port­fo­lio cap­i­tal move­ments out of Trinidad and To­ba­go."

In Jan­u­ary the MPC not­ed that the do­mes­tic econ­o­my ap­peared to be ap­proach­ing full ca­pac­i­ty. The Cen­tral Bank said the sit­u­a­tion re­mained un­changed, al­though head­line in­fla­tion slowed for the third con­sec­u­tive month in Feb­ru­ary to just over six per cent from nine per cent in No­vem­ber 2014.

The slow­down in food in­fla­tion was due to high­er food sup­ply and favourable weath­er con­di­tions and it con­tributed to the de­cel­er­a­tion in head­line in­fla­tion.

How­ev­er, the Cen­tral Bank ex­pects this eas­ing in head­line in­fla­tion to be short lived, as in­fla­tion­ary pres­sures are ex­pect­ed to pick up dur­ing the rest of the year due to a num­ber of fac­tors.

"Growth of con­sumer cred­it re­mains ro­bust, in­creas­ing by near­ly 8 � per cent in Jan­u­ary 2015, sug­gest­ing con­sumers are still will­ing to spend de­spite neg­a­tive sen­ti­ment sur­round­ing falling oil prices," the bank said.

Cur­rent and ex­pect­ed set­tle­ment of wage ne­go­ti­a­tions for teach­ers, civ­il ser­vants and oth­er pub­lic sec­tor work­ers with con­sid­er­ably large retroac­tive pay­ments and salary in­cre­ments will boost con­sumer spend­ing and fur­ther stoke in­fla­tion­ary pres­sures."

Gov­ern­ment's spend­ing on its cap­i­tal pro­gramme was up by sev­en per cent in the first four months of the fi­nan­cial year com­pared to the cor­re­spond­ing pe­ri­od last year.

In the fi­nal quar­ter of 2014, eco­nom­ic growth was buoyed by fur­ther pos­i­tive mo­men­tum in the non-en­er­gy sec­tor, even as ac­tiv­i­ty in the en­er­gy sec­tor was marred by main­te­nance work, the Cen­tral Bank re­port­ed.


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