The Central Bank would like to see interest rates rise gradually, Governor Jwala Rambarran told reporters after addressing an event hosted by the Financial Services Ombudsman yesterday at the Hyatt Regency.He said the increase in the bank's repo rate, the first in four years, by 25 basis points, signals that the regulator would like to see interest rates rise, but gradually. The Central Bank announced a tightening of its accommodative monetary policy stance on Friday, raising the repo rate to three per cent. It said the decision, which took effect immediately, was necessary to pre-empt a potential rise in inflationary pressures.
The Central Bank had adopted an accommodative monetary stance in the past to help stimulate economic growth and encourage business and consumer lending. That had included holding the repo rate at an historical low of two-and-three-quarter per cent since September 2012.The bank had said a "sharp uptick in food prices pushed headline inflation up to seven-and-a-half per cent in August 2014 from three per cent in June 2014." The statement continued: "Looking ahead, higher public spending through the expansionary 2014/2015 Budget is likely to add to already elevated liquidity levels (currently around $7 billion), and potentially push up inflation in the coming year.