Monetary Policy Advisory Council - Interest Rate Rise

Friday, April 8th, 2005

During the Monetary Policy Advisory Council meeting held this morning, it was decided to raise the central intervention rate by 25 basis points to 3.25%. The decision was taken by the Governor at the end of the. The following press release was issued by the Central Bank today:

"The Governor noted that, in a domestic financial environment that was otherwise stable, the external reserves resumed their decline in March and early April. Although this continued to reflect a number of structural factors, including the liberalisation of trade and capital movements and the rise in the fuel import bill, the resulting pressures on the balance of payments were compounded by strong growth in bank lending to the personal sector, which was accentuating the shift in consumption towards imports seen in previous months. The decision to raise interest rates should therefore serve to curb this excessive credit growth, dampen resulting inflationary pressures and help to correct the existing imbalance between saving and spending, which is not sustainable in the medium-term. It also echoed the Council’s view that concerns over this imbalance outweigh concerns about the possible impact of higher interest rates on economic activity.

In this regard, the Governor recalled that in a fixed exchange rate regime the conduct of monetary policy was focused on supporting the exchange rate. Therefore, to be fully effective monetary policy needed to be complemented by an appropriate fiscal policy and by structural reforms designed to enhance the economy’s international competitiveness.

The Monetary Policy Advisory Council is due to meet again on 26 April 2005".

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