Thursday 28th April 2005


T&T bank rates on the rise

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By Vangie Bhagoo & Stacey Ramjattan

Research Analysts

For the week ending April 22

Trinidad and Tobago

Commercial banks have started to implement a 25 basis points increase in the TT prime lending rate to nine per cent from 8.75 per cent.

This was in response to the Central Bank’s decision to raise the benchmark repo rate to 5.25 per cent in March 2005 after leaving it at five per cent since September 2003 in light of inflationary buildup. According to the bank, the repo rate increase signals a rise in short-term borrowing since it is the rate at which CBTT provides overnight liquidity to the banking sector.

Commercial banks last adjusted the prime lending rate last year when the second phase of the reserve requirement reduction was executed.

The reserve requirement was lowered to 11 per cent from 14 per cent in October last year. This subsequently led to a decline in the prime lending rate to 8.75 per cent from 9.50 per cent. The final phase of the reduction is expected sometime this year, when the cash reserve requirement will be reduced to nine per cent, the same rate as non-banks.

On April 15, the Central Bank issued an OMO (issue size $140 million) at an average discount rate of 4.92 per cent which will mature on December 30. Also on that day, T-Note 1-22 ($160 million) matured.

The Central Bank issued another OMO on April 19, in an amount of $135 million at a rate of 4.98 per cent, expected to mature March 31, 2006. Additionally, a one-year T-Note was issued with a coupon of 5.25 per cent amounting to $55 million.


After a day of rioting in the capital city of Quito, President Lucio Gutierrez has been ousted and vice-president Alfredo Palacio inaugurated as the new president. This is Ecuador’s third presidential overthrow in eight years. Gutierrez was accused of nepotism when he tried to fix the Supreme Court’s decision on corruption charges against a former president. He also failed to secure congressional approval on bills to renew an IMF loan agreement and came under further pressure for not fulfilling campaign promises such as a reduction in unemployment.

On the international markets, Ecuador’s 2012 bond closed at a low of 97 with a yield of 12.624 per cent on April 20 compared to a price of 100.951 and yield of 11.803 per cent the day before.

Uncertainty about short-term and medium-term economic management as well as the highly volatile political environment has prompted Standard and Poor’s to place the country on credit watch, with negative implications. S&P believes that Ecuador would experience increased difficulties in honoring its imminent principle and interest obligations. The country’s long-term sovereign credit rating currently stands at B-.


The monetary committee of the Brazilian Central Bank defied market expectations and once again raised the benchmark interest rate by a quarter-percentage point to 19.50 per cent. The market was expecting Copom to leave the rate at 19.25 per cent.

This is the eight consecutive month that Copom has increased the Selic. In the minutes of the last meeting, it was indicated that Copom might have halted interest rate increases on the basis that inflationary threats had subsided and the Brazilian economy was at no risk of heating up.

The IPCA consumer price index rose 0.61 per cent in March, up from a 0.47 per cent rise the same month last year. Year-on-year, the IPCA rose 7.54 per cent in March, making it increasingly difficult for the central bank to meet its inflation target rate of 5.1 per cent.

Meanwhile, the public debt situation has worsened due to the hikes in the Selic rate. Public debt has increased by almost eight per cent in the first quarter of 2005 and now stands at R$872.61 billion (US$335.24 billion). For the month of March alone, the government’s debt rose by R$28.22 billion (US$10.85 billion), of which half is attributable to the interest rate increase.

Dominican Republic

The Dominican Republic has launched its exchange offer for its global bonds. The proposed restructuring was largely in line with market expectations; the authorities also ordered the payment of the late coupon on its 2006 bond, which has prevented a default less than one week before the end of the grace period.

The main features of the exchange proposal include maturity extension and the temporary capitalisation of interest. Maturities on the new bonds will be five years longer and there will be no principal haircut and no coupon reduction on the new bonds. They will also be inclusive of collective action clauses. The exchange offer expires May 4.

Following the announcement of the bond exchange, S&P downgraded the rating on DR’s 2006 and 2013 bonds to D, from CC. Once the expected new bonds are issued and the commercial bank debt is restructured, S&P should raise its credit ratings on Dom Rep most likely to B.

International Markets

US consumer prices jumped to 0.6 per cent in March, while core inflation rose 0.4 per cent- representing the biggest gain in more than two years. The increase in core inflation suggests that companies were able to pass on rising costs of fuel and materials to consumers.

The March increase in consumer prices follows a 0.4 per cent increase the previous month. Year-on-year, all consumer prices rose 3.1 per cent, compared with three per cent in February.

Core inflation for the 12-months ending March 2005 was 2.3 per cent, slightly down from 2.4 per cent for the 12-months that ended February.

The US 10-year Treasury note fell after signs that inflation has not yet stabilised in the US economy, falling to 97.75, with a yield of 4.28 per cent.

Economic growth in China continues to outperform the rest of the world as the economy grew 9.5 per cent in the first quarter of 2005 attributed to a surge in exports and investments. Fixed-asset investments rose 23 per cent in the same period, which can create shortages of oil, electricity and other essential commodities and services.

Chinese inflation averaged 2.8 per cent in the first quarter, well below the government’s limit of four per cent, while producer prices increased 5.6 per cent.

International currencies

The US dollar advanced in the last week with the release of US consumer prices, which had the biggest gain since October last year, and after an index of regional manufacturing unexpectedly increased. The rise in consumer prices may support speculation that the US Fed will continue with its monetary stance in raising its benchmark interest rate. Against the euro, the dollar traded at $1.3056 on April 21 and remained stable against the yen at 106.88 from 106.84 previously.




©2004-2005 Trinidad Publishing Company Limited

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