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Wednesday, July 23, 2025

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Is the era of cheap money coming to an end?

by

20140612

In Feb­ru­ary 2009–as the glob­al fi­nan­cial cri­sis be­gan to im­pact T&T and around the time of the col­lapse of the CL Fi­nan­cial em­pire–the Cen­tral Bank's re­po rate stood at 8.75 per cent.

The re­po rate–the Cen­tral Bank's key mon­e­tary tool and the amount of mon­ey the in­sti­tu­tion charges for pro­vid­ing overnight cred­it to banks that are un­able to meet their liq­uid­i­ty re­quire­ments–was re­duced to 8.5 per cent in March 2009 "in or­der to pro­vide the sig­nal for the low­er­ing of bank lend­ing rates, es­pe­cial­ly to busi­ness­es."

A lit­tle over five years lat­er, the re­po rate is at 2.75 per cent where it has stayed since it was re­duced by 25 ba­sis points in Sep­tem­ber 2012.

In Feb­ru­ary 2009, the prime lend­ing rate of­fered by com­mer­cial banks to their best cus­tomers was 13 per cent. To­day, the quot­ed prime lend­ing rate is 7.5 per cent, but for some time now the high lev­els of liq­uid­i­ty have al­lowed some cus­tomers to ne­go­ti­ate rates be­low prime.

As re­cent­ly as De­cem­ber 2008, T&T's 90-day Trea­sury Bill rate was an amaz­ing 7.05 per cent and when the rate de­clined to 4.37 per cent in Feb­ru­ary 2009, it's in­ter­est­ing that the Cen­tral Bank then spoke about the "sharp nar­row­ing in the dif­fer­en­tial be­tween US and TT short-term in­ter­est rates. This dif­fer­en­tial fell to 404 ba­sis points (4.04 per cent) in Feb­ru­ary 2009 from 700 ba­sis points (sev­en per cent) in De­cem­ber 2008."

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