Mar 2013 Financial News

Inflation drops to 5.9 per cent

Mar 25, 2013

Data released by the Central Statistical Office show that on a twelve month basis headline inflation fell to 5.9 per cent in February from 7.3 per cent in the previous month. On a monthly basis, headline inflation slowed to 0.3 per cent following an increase of 2.6 per cent in January.

A deceleration in food prices contributed to the decline in headline inflation during February as food price inflation eased to 10.6 per cent from 13.8 per cent in January. This partly reflected a slowdown in the price increases for vegetables—to 17.8 per cent in February compared with 27.6 per cent in January—and meat—to 6.9 per cent compared with 9.6 per cent in January.

At the same time, there were slight declines in the prices of fruit, milk, cheese and eggs, as well as sugar and confectionary items in February relative to levels in February, 2012.

Core inflation, which excludes movements in food prices, also slipped further to 2.1 per cent in February from 2.2 per cent in January. Slower price increases were recorded for alcoholic beverages and tobacco, as well as clothing and footwear, while there was a marginal acceleration in prices for recreation and culture. Latest available statistics show that credit to the private sector remained subdued in early 2013.

On a year-on-year basis to January, credit granted by the consolidated financial system slowed to 1.9 per cent from 2.1 per cent in December 2012. Loans to consumers expanded by 3.2 per cent while real estate mortgage lending continued to be very robust, increasing by 11.6 per cent in January. On the other hand, credit to private businesses declined for the second consecutive month, by 1.9 per cent in January from 0.8 per cent in December 2012 despite the softening of loan interest rates over the past few months.

On account of significant net domestic fiscal injections and relatively low demand for credit, liquidity in the financial system continued to increase. Commercial banks’ holdings of excess reserves at the Central Bank rose to a daily average of $5,961.9 million in March from $5,125.5 million in the previous month. To address the liquidity situation, the Central Bank rolled over for one year $1.5 billion in fixed deposits which commercial banks held at the Bank.

Central Bank foreign exchange sales to authorised dealers also helped to remove $415 million from the banking system. Short-term interest rates fell further during the month of March, with the rate on three-month treasury bills declining by 6 basis points to 0.18 per cent as at March 18. Meanwhile, the US three-month treasury rate reached 0.10 per cent, resulting in a narrowing of the differential between TT and US three-month treasury rates to 0.08 per cent in March from 0.11 per cent in the previous month.

The stability of core inflation supports the view that underlying price pressures remain subdued at present. While the domestic economy is expected to improve over the course of 2013, available indicators suggest that private sector demand for credit was relatively slow in the early months of the year.

In the circumstances, the Central Bank views the present accommodative monetary policy stance as appropriate and has decided to maintain the ‘Repo’ rate at 2.75 per cent. It will continue to keep economic and monetary conditions under close review in the coming months.


Source:
Trinidad Guardian
Monday March 25, 2013