CBS maintains previous monetary policy but ready to adjust if needed |26 September 2017

In its third meeting this year to decide which position to take on its monetary policy for the fourth quarter of 2017, the Central Bank of Seychelles (CBS) has decided to maintain the same policy of the third quarter in order to continue to support economic activity.

But the bank has stressed it is ready to adjust its stance to safeguard price stability if there is a need.

The policy was first decided upon by the CBS board at its last sitting in June this year where it relaxed the policy which came into effect for the three following months – July to September. But the board also made sure the bank’s objectives are not affected like stability in prices.

This was revealed through a press conference yesterday by CBS Governor Caroline Abel.

 “This morning the technical team reviewed the developments that have occurred in the last three months, how the June decision reflected on the economic realities, especially in the financial system notably commercial banks, and we found it necessary that CBS board maintains that position; keeps its monetary policy relaxed and more flexible. And with this, we leave the interest rate corridor the same as announced in June with a maximum rate of 6% and minimum 1%,” she said. Interest rate corridors are the interest rates the CBS uses for its transactions with commercial banks and the Seychelles Credit Union.

“Through the interest rates, we provide guidance to commercial banks which assist them in fixing their prices on interest rates on loans and deposits,” she said.

After their transactions at the end of the day if they have funds remaining, Ms Abel said the 1% minimum rate allows them to deposit any extra funds at the CBS. But if they have limited funds and have not been successful in their appeal to other commercial banks, they can come to CBS as the last option, where they are charged 6%.

But Ms Abel stressed CBS remains vigilant and continues to monitor inflationary developments during the quarter.

As for inflation, she said moderate increases in commodity prices from overseas are expected to have limited impact on inflation.

After conducting their own assessment, Ms Abel said the rise in inflation since the start of 2017 has continued with 3.9% in August 2017 but the overall weak external inflationary pressures and the anticipated depreciated level of the Seychelles rupees are expected to have limited impact on domestic inflation.

“The rupee is not expected to depreciate as much as initially anticipated due to better inflows of foreign exchange and modest increases in global commodity prices expected,” she explained.

She added domestic activity is picking up with positive performance in tourism sector which is translated into higher earnings. Activity in the tourism industry, the economy’s main driver, has continued to perform relatively well.

Regarding other economic activities, there are mixed signals from fisheries sector as tuna production stagnated while export value improved slightly. There has been a rebound in the Gross Domestic Product (GDP) growth after a year of slowdown.

“Economic outlook for 2017 indicates positive GDP growth with infrastructure projects expected to have a slight positive effect on growth if it materialises; positive visitor arrival anticipated to continue due to more airline connections this year compared to last year but uncertainty in the performance of the tuna sector is expected to persist, while money supply growth has increased and interest rates have remained stable,” Ms Abel explained.