Central Bank treads cautiously into first quarter of 2018 |28 December 2017
The Central Bank (CBS) Board has decided to maintain its current monetary policy stance for the first quarter of 2018.
The bank says modest inflationary pressures are foreseen in the near term, which are not expected to reach levels that will threaten the CBS’ objective to maintain domestic price stability. This is on account of low external inflationary pressures as global commodity prices are anticipated to increase marginally while the depreciation of the Seychelles rupee (SCR) against the US dollar remains modest. The Board has also maintained the position of the interest rate corridor such that the rate on the Standing Deposit Facility (SDF) stands at 1.0 per cent while that on the Standing Credit Facility (SCF) at 6.0 per cent. The SCF and SDF rates form the ceiling and the floor for short-term money market rates.
Reserve money which serves as a measure of liquidity into the system is projected to be at an average of R3,429 million for Q1 2018. This is a contraction of 3.5 per cent compared to the last quarter of 2017 to be aligned with the seasonal change in demand for liquidity in the first quarter of the year.
The minimum reserve requirement (MRR) was kept unchanged at 13 per cent of applicable deposit liabilities. The primary purpose of the minimum reserve requirement is to regulate the amount of money circulating in the economy, and as such this requirement is part of the CBS’s overall policy stance.
The Bank remains vigilant and stands ready to adjust its policies as needed to promote price stability.
Global factors expected to pose limited threat to domestic price stability
The world economic outlook is projected to show further signs of improvement despite remaining on a fragile recovery path. Going forward, moderate increases are expected, both in global food and oil prices. Nonetheless, the slight uptick in inflationary pressures externally and the continued depreciation of the SCR are likely to result in a modest increase in domestic inflation.
Tourism continues to boost economic activity
The tourism industry remains the key contributor to the country’s economic performance. The positive growth in tourist arrivals in 2017 so far has outperformed last year’s levels, which in turn has translated in increased tourism earnings.
From January to November 2017, total visitor arrivals stood at 320,132 compared to 274,336 for the same period in 2016, representing a year-to date growth of 17 per cent. In 2017 up to November, tourism earnings are estimated to have increased by 16 per cent in US dollar terms.
Pick up in money supply growth
The quarterly average interest rate on the 7-day Deposit Auction Arrangement (DAA) stood at 2.90 per cent as at December 22, while the average return on the 91-day Treasury bills was 3.3 per cent from 3.4 per cent at the end of the third quarter of 2017.
Monetary statistics for November 2017 revealed a year-on-year growth of 18 per cent in the money supply compared to 11 per cent in November 2016. Consistently, credit to the private sector has grown by 18 per cent in November 2017 on a year-on-year basis, largely driven by an increase in consumer loans.
Modest inflationary pressures expected in the short-term
Since the beginning of 2017, the increase in the general price level has been higher than in the previous year. In November 2017, year-on-year inflation stood at 3.0 per cent while the 12-month average rate was 2.5 per cent. In the near term, inflationary pressures are expected to pick-up largely due to revisions in administrative prices as well as a rebound in global commodity prices and a weakening of the domestic currency.
