Central Bank holds repo rate at 3.5%

THE Central Bank has maintained its repo rate at 3.5 per cent, citing low inflation, robust liquidity and moderate economic growth.

In its December 27 monetary policy announcement, the Central Bank reported that headline inflation remained subdued at 0.5 per cent in November, up slightly from 0.2 per cent in October.

Core inflation, which excludes food prices, was unchanged, while food inflation rose to 3.1 per cent.

Liquidity in the financial system remained strong, supported by a reduction in the reserve requirement for commercial banks from 14 to ten per cent in July.

"This adjustment allowed commercial banks to maintain an average of $6.4 billion in excess reserves during the first two weeks of December," the report said.

Real gross domestic product (GDP) grew by 1.5 per cent year-on-year in the first quarter of 2024, driven by resilience in the non-energy sector. Key contributions came from trade, transportation, storage and construction.

However, natural gas supply constraints negatively affected the energy sector in the second and third quarters, tempering overall growth.

Unemployment improved slightly, with the rate declining to 4.8 per cent in the second quarter of 2024 from 5.1 per cent in the previous quarter.

However, this figure remained higher than the 3.7 per cent recorded in the corresponding period in 2023.

Private sector credit expanded steadily throughout 2024. Business lending outpaced consumer loans, with financing spread across manufacturing, agriculture and construction sectors.

Consumer lending growth was concentrated in durable goods, particularly vehicles.

The global economic outlook remained stable.

The International Monetary Fund projects 3.2 per cent growth for 2024, slightly below the 3.3 per cent recorded in 2023.Geopolitical conflicts in Eastern Europe and the Middle East continued to pose risks. However, easing inflation prompted central banks globally to reduce interest rates, including the US Federal Reserve, which implemented three rate cuts during the year.

The Central Bank’s Monetary Policy Committee (MPC) acknowledged the favourable domestic and global conditions but stressed a need for caution.

"Low inflation, buoyant credit conditions, ample liquidity and a continued measured expansion of non-energy output formed key components of the domestic backdrop," the MPC said, adding that rapid economic changes remain possible.

The next monetary policy announcement is scheduled for March 28, 2025.