Thursday 21st April 2005

 

Higher lending rates no surprise

 
 
 
 
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By Sandra Chouthi

The Central Bank sending up the repo rate sent the signal to banks to increase their prime lending rates, said economist Kelvin Sarjeant.

Sarjeant was commenting on published notices by FCB and Republic Bank that their prime lending rate had been increased to nine per cent.

Sarjeant said given that there existed a falling interest rate environment, the demand for residential and commercial loans also went up.

“All of those things contributed a little to an inflation situation we saw happening,” Sarjeant said.

“It seems to me we are moving away from a falling interest rate environment to one where the interest rate will start to increase slowly,” Sarjeant said.

He said he expects the overall prime lending rate to settle between 9.75 and 9.80 per cent.

While FCB and Republic Bank have upped their prime lending rates, RBTT’s commercial lending rate has also gone up to nine per cent.

TTMA president Paul Quesnel said RBTT’s increase in its TT dollar commercial lending rate will have the effect of adding to the cost of doing business.

Quesnel said RBTT’s adjustment of its commercial lending rate is as a result of Central Bank raising the repo rate to 5.25 per cent.

The repo rate had been five per cent since September 2003.

The repo rate is the rate at which banks borrow overnight from the Central Bank.

Quesnel said businesses are already faced with increased shipping rates and other costs associated with inefficiencies.

“We’re now faced with the additional cost of borrowing,” Quesnel said. “Many of our businesses have to borrow money to stay operational. It’s also going to affect our competitiveness and goods are going to cost more if we are to export more.”

Quesnel said if there’s excess liquidity in the system, Central Bank increases the repo rate to keep the exchange rate at $6.30 to US$1.

“If there’s a lot of money floating around, people tend to buy commodities—a new living-room set, a new fridge—things they normally wouldn’t buy if things were tight,” he said.

“It’s a matter of Central Bank trying to keep things under control,” Quesnel said. “One has to balance the cost of doing business over time.”

Chamber president Christian Mouttet said given that the US interest rate has moved up, it’s no surprise local rates have equalised.

“Between the US interest rates moving up and moving into a higher inflation environment, it’s no surprise that Central Bank has moved the repo rate,” Mouttet said.

“The reality is that we are moving into a higher inflationary period and US rates are moving up,” he said.

 

 

 

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