The T&T Manufacturers' Association (TTMA) has described as "a bit worrisome" the decision by the Central Bank to increase the repo rate.
The business group said: "In countries like Canada and other commodity-based economies like T&T, the reverse is happening. Interest rates continue to be low in addition, all currencies are at a low compared to the US dollar. US interest rates are trending upward; our currency is pegged to the US dollar so our money has actually strengthened compared to the other basket of currencies. So high interest rates, strong TT dollar means lower exports and less global competitiveness."
In its recent monetary policy announcement, the Central Bank said one of the reasons for the increase was the US Federal Reserve's commencement of normalization of its monetary policy. Th Central Bank also said it increased the repo rate for the sixth consecutive time to 4.25 per cent since it predicted inflation in T&T in the coming months.
The TTMA said in response to questions from the T&T Guardian that small and medium enterprises are likely to be affected if the repo rate continues it upward climb and commercial banks continue to increase their base rates."One of the main causes of the need for higher overdraft these days is the cost of holding US dollars to cover outstanding invoices to be able to pay them on time," the group said.
"We have to have US dollars in hand six weeks ahead of the due date of invoices because of the slow rate it is being allocated. This makes us unable to take advantage of our credit terms with suppliers which are sometimes in excess of 90 days credit. A real waste of good credit."
The TTMA added: "In our challenging economy, one would assume that we would adopt the same measures as other countries in our situation–adjustments in both the interest rates and foreign currency rates. We need to address our competitiveness and productivity so as to be more sustainable."
The group warned that there could be an increase in the cost of goods and services if overdraft and loan facilities had to be used by businesses."Some firms have elected to absorb increased borrowing costs by reducing profit margins, and while it may not be immediate, others may pass on the additional cost to customers through higher prices. Market share may fall for those companies as most businesses operate in price sensitive environments. Indeed, it will impact on the profitability and growth potential of start-up manufacturers."
The TTMA also said the increase in the repo rate is likely to make its members less competitive.
"With revenues from some firms already under pressure from low sales domestically and regionally, it means that profit margins will be even smaller if they are to remain in business. Furthermore, this increase will impact on cash flow and ultimately hinder business growth as the trending increases will influence investment decisions," the group said.