Published: Wednesday July 30, 2008
Stockbroking firm, Caribbean Money Market Brokers Ltd (CMMB) has said that it expects inflation in T&T to remain at high levels between 10 - 13 per cent for the rest of the year.
In a statement yesterday, CMMB said its expectation was based on the fact that there was “no visible abatement in government spending on the horizon.”
The Central Bank last Friday announced that the country’s inflation rate had reached a 14-year high of 11.3 per cent at the end of June.
This represented an increase from 10 per cent at the end of May and 7.3 per cent at at the end of June last year.
CMMB said “we expect that inflation will remain at elevated levels and should range between 10-13 per cent for the rest of the year.
Given this expected trend, together with the gradual tightening in TT dollar liquidity, interest rates should also increase.” It added that, “The repo rate should also increase by a further 50 basis points to reach 9 per cent by the end of 2008; an historic high from its inception.”
The Central Bank last Friday increased the Repo rate from 8.25 to 8.50 per cent.
CMMPB said it was not surprised at the increased in the inflation rate.
It said that, “The situation is exacerbated as core inflation, which strips away the volatility of food prices, rose significantly to 6.4 per cent year-on-year in June, versus 5.2 per cent in May. This was almost solely driven by the rise in the price of electricity, as rates for residential consumers increased between 14-48 per cent.
According to CMMB, “Core inflation is very important, as this represents the inflationary pressures emanating from within the economy. This is the component of overall inflation which the Central Bank has some control over.
The prices of food and energy products which trade on the international markets are out of their control. They are exogenous to our system, thus we are virtual price takers in this regard.”
The firm said, “The Central Bank vainly hopes that their hikes in both the repo rate and the cash reserve requirement for commercial banks will have an impact on the financial system. However, we observe that credit expansion continues to surge, increasing in excess of 18 per cent, with consumer credit and mortgage loans outpacing the growth of business credit.
The company said that by increasing the cash reserve requirement for commercial banks the Central Bank had reverted to measures which it had deemed “archaic” not too long ago.
“The view from the Central Bank tower clearly indicates that drastic times call for drastic measures,” CMMB said, adding that, “The irony of using the tools the CBTT has at its disposal is that, unfortunately for us, they have all been tried before and, regrettably, they all have failed before. It’s difficult to envisage a different result this time around.”
CMMB said among the Central Bank’s options are to limit fiscal injections, shock the system with a big increase in interest rates, reduce the food import bill, by providing incentives for agriculture locally or by temporarily removing import duties on basic/staple food items.
Source: Trinidad Guardian Newspapers