Central Bank maintains repo rate at 3.5%

THE Central Bank has decided to maintain the repo rate at 3.50 per cent – a rate unchanged since December 2020.

In its latest monetary policy announcement, issued on September 27, the Central Bank attributed low inflation, modest economic recovery and the need to monitor consumer credit growth to its decision.

The bank reported headline inflation dropping to 0.4 per cent in August, compared to 0.7 per cent in June.

Food inflation also eased, falling from 2.3 per cent in June to 1.5 per cent in August. Core inflation, which excludes food prices, was minimal, at 0.1 per cent in August.

The bank noted that "inflationary pressures are generally dissipating from the highs in 2023," with no signs of significant wage-price spirals.

It also reported growth in the non-energy sectors, noting relative buoyancy in non-energy output, with strong performance in wholesale and retail trade, transportation, construction and manufacturing.

The energy sector, however, experienced a decline in the second quarter of 2024 due to maintenance-related decreases in crude oil and natural gas output.

The lack of available natural gas also impacted the production of liquified natural gas, ammonia and methanol, though urea production saw a marginal increase.

Banking system liquidity increased by approximately $3 billion after the July reduction in the reserve requirement from 14 per cent to ten per cent.

The bank reported that excess reserves fluctuated, owing to portfolio adjustments by commercial banks, but reached a daily average of $6.3 billion by mid-September.

Credit to the private sector has also grown, with consumer lending rising by over ten per cent year-on-year from March to June, largely concentrated on loans for motor vehicles, refinancing and debt consolidation.

Business and real estate mortgage lending also increased, with monthly averages of 9.2 per cent and 5.1 per cent, respectively.

It noted that central banks globally are responding to easing inflationary pressures by lowering their policy rates, albeit at different paces.

"In September, the US Federal Reserve lowered its target range for the federal funds rate by 50 basis points to 4.75 to five per cent – its first rate cut since March 2020," the report read.

"The Bank of England trimmed its benchmark rate by 25 basis points to five per cent in August, keeping it at this level in the following month, while the European Central Bank dropped the interest rate on its main refinancing operations by 85 basis points to 3.65 per cent over June and September.

"Many other central banks had begun their easing cycles earlier, while some, such as the Central Bank of Brazil, recently raised their rates in light of higher domestic inflation numbers. Meanwhile, geopolitical tensions remain very high in the Middle East, alongside the ongoing Russia-Ukraine war, significantly adding to uncertainties on the short to medium-term global economic outlook."

The Monetary Policy Committee, responsible for the repo rate, highlighted the combination of low inflation, steady economic recovery in non-energy sectors and the "prospects of narrowing of the negative short-term TT/US interest rate differential.

"At the same time, the committee observed that consumer credit was growing at a double-digit pace and needed to be closely monitored in coming months. Taking all factors into account, the MPC agreed to maintain the repo rate at 3.50 per cent.

"The Central Bank will continue to keep international and domestic developments under close review."

The next monetary policy announcement is scheduled for December 30.