The in­fla­tion rate slowed in April, drop­ping to 5.5 per cent from the 6.9 per cent record­ed the pre­vi­ous month, the lat­est da­ta re­leased by the Cen­tral Sta­tis­ti­cal Of­fice shows.How­ev­er, while there was an eas­ing of head­line in­fla­tion, mea­sured by the 12-month change in the In­dex of Re­tail Prices, on a month­ly ba­sis, it rose by 1.5 per cent in April, fol­low­ing an in­crease of 0.2 per cent in March.

For the first time since Oc­to­ber 2011, food price in­fla­tion slowed to sin­gle dig­its reach­ing 9.4 per cent in April. This com­pared with food price in­fla­tion mea­sur­ing 26.2 per cent in April 2012 and 15.0 per cent in April 2011.An in­crease in do­mes­tic sup­ply of some food items may have helped to damp­en the im­pact on prices, as weath­er con­di­tions were gen­er­al­ly favourable.

How­ev­er, the de­cel­er­a­tion in the rate of in­crease of food prices may al­so part­ly re­flect the "base ef­fect" as­so­ci­at­ed with a spike in the Food sub-in­dex in April 2012.

Core in­fla­tion, which re­moves move­ments in food prices, rose mar­gin­al­ly to 2.4 per cent (year-on-year) in April 2013 from 2.2 per cent in the pre­vi­ous month. There were sharp­er price in­creas­es for al­co­holic bev­er­ages and to­bac­co (5.0 per cent from 4.1 per cent in March) and cloth­ing and footwear (2.3 per cent from 1.7 per cent in March) in April. Pri­vate sec­tor cred­it growth re­mained sub­dued.

On a year-on-year ba­sis, pri­vate sec­tor cred­it grant­ed by the con­sol­i­dat­ed fi­nan­cial sys­tem grew by 2.0 per cent in March, slight­ly low­er than the 2.1 per cent in­crease record­ed in Feb­ru­ary. While growth in con­sumer lend­ing con­tin­ued at a rea­son­able clip, busi­ness lend­ing con­tract­ed for the fourth con­sec­u­tive month, falling by 2.4 per cent in March fol­low­ing a de­cline of 2.1 per cent in the pre­vi­ous month.

Mean­while, al­though there was some slow­down in re­al es­tate mort­gage lend­ing, the pace re­mained ro­bust in March 2013.

The fi­nan­cial sys­tem con­tin­ues to be high­ly liq­uid. Com­mer­cial banks' ex­cess re­serves at the Cen­tral Bank av­er­aged $6.5 bil­lion on a dai­ly ba­sis over the pe­ri­od May 1-21, com­pared with $5.3 bil­lion in April. In re­sponse to the large build-up in liq­uid­i­ty lev­els, the Cen­tral Bank fa­cil­i­tat­ed the is­sue of a $1 bil­lion Cen­tral Gov­ern­ment liq­uid­i­ty ab­sorp­tion bond on May 21.

With the pro­ceeds of this bond be­ing ster­ilised at the Cen­tral Bank, com­mer­cial banks' ex­cess re­serves fell to $5.8 bil­lion on May 21 from over $7 bil­lion ear­li­er in the month.

In ad­di­tion, Cen­tral Bank sales of for­eign cur­ren­cy to au­tho­rised deal­ers in­di­rect­ly re­moved $637 mil­lion from the sys­tem.Al­so in May, the Bank rolled over a $1 bil­lion fixed de­posit held by com­mer­cial banks at the Cen­tral Bank for one year. Nev­er­the­less, with liq­uid­i­ty still at el­e­vat­ed lev­els, there was no ac­tiv­i­ty on the in­ter-bank mar­ket and banks did not ac­cess the Cen­tral Bank's re­po fa­cil­i­ty.

Short-term trea­sury rates re­mained de­pressed giv­en the high lev­els of liq­uid­i­ty. As at May 21, the three-month trea­sury bill dis­count rate stood at 0.15 per cent, the same as in the pre­vi­ous month, while the six-month trea­sury bill rate fell to 0.18 per cent this month from 0.36 per cent in March.

With short-term US trea­sury rates hold­ing steady, the dif­fer­en­tial be­tween TT and US 3-month trea­sury bill rates was un­changed at 10 ba­sis points thus far in May. To en­cour­age cred­it de­mand banks low­ered their lend­ing rates ear­ly this year. Com­mer­cial banks' weight­ed av­er­age lend­ing rate fell to 8.59 per cent in March from 8.75 per cent in De­cem­ber.

The re­cent slow­down in head­line in­fla­tion and the con­tin­ued sta­bil­i­ty in core in­fla­tion sug­gest that gen­er­al price pres­sures are con­tained, al­though food price pres­sures may in­crease in com­ing months with the ad­vent of the rainy sea­son.