Domestic food supplies outlook favourable

In April 2012, year-on-year inflation as measured by the CCPI (base=2006/2007) was 6.1 percent while annual average inflation was 5.7 percent. While inflation continues to remain at single-digit levels, the outlook for domestic food supplies remains favourable; this augurs well for domestic prices in the period ahead. The improvement in the supply of domestic agricultural produce over the last few years has continued to help stabilize domestic consumer prices, the Central Bank said.

On the external front, international oil prices have recently declined and the Brent crude oil price was US $ 112.41 a barrel on May 10, 2012 compared to US $ 120 a barrel, on average, in March 2012. If this dampening of international commodity prices led by the decline in oil prices persists into the forthcoming period, pressure on the domestic foreign exchange market is likely to lessen markedly.

The expected deceleration in the volumes of imports during the course of the year 2012 following the measures taken by the government and the Central Bank earlier this year will also significantly reduce pressure on the domestic foreign exchange market.

With respect to monetary developments, market interest rates have moved up gradually, reflecting the tightening of monetary conditions. Benchmark Treasury Bill yield rates have increased and in turn, deposit and lending rates of commercial banks as well as other financial institutions have shown an increasing trend. Meanwhile, banks have been directed to take measures to reduce the growth of loans and advances to a range of 18 – 23 percent.

Hence, although broad money (M2b) growth was 22.8 percent, year-on-year, by March 2012, monetary aggregates are expected to decelerate significantly over the balance part of the year.

At the Monetary Board meeting held on May11, 2012, the Monetary Board was of the view that the policy measures implemented thus far are sufficient to moderate the expansion of both credit and the trade deficit. While the Central Bank expects a deceleration in both monetary aggregates and imports during the course of this year, it will continue to closely monitor monetary and external sector developments and adopt further measures if necessary in the months ahead.

The Central Bank’s Repurchase Rate therefore will remain at 7.75 percent while the Reverse Repurchase Rate will remain at 9.75 percent. The next monthly statement on monetary policy is scheduled to be released on June 12, 2012.