Energy up, price pressure contained

ACTIVITY in the energy sector is picking up and price pressures are “well contained. This was reported yesterday by the Central Bank, ahead of the presentation of the 2018/2019 budget in the House of Representatives on Monday.

In its latest monetary policy report, the bank said activity in the energy sector continued to pick up in the second quarter. Natural gas production benefitted from the implementation of the Juniper project with positive spill overs to methanol output.

Price pressures were contained with headline inflation registering 1.1 percent in August. Recent trends show a reversal of the trend of falling cement sales. But the bank said it is too early to say whether this reflects a recovery in construction and the non-energy sector as a whole.

Lending to the private sector grew this year, reaching 7.1 per cent in July. This reflected mainly loans for refinancing and debt consolidation with credit to businesses rising by a more modest 2.7 per cent. The first half of the year saw a 1.2 per cent decline in the interest spread of commercial banks as a result of a simultaneous decrease in the average lending rate alongside a rise in the average deposit rate.

There was a temporary spike in excess reserves of commercial banks at the Central Bank in July and August. This was due to widespread investor interest in a public sector bond arrangement.

The Central Bank’s removal of the two per cent secondary reserve requirement on banks’ deposit liabilities in August also boosted liquidity. Based on these and other factors, the bank decided to maintain the repo rate at five percent.