President of the Bankers Association of T&T (BATT) Darryl White said the cost of borrowing is about to increase as the prime lending rates at commercial banks have been on the rise for the past few months. This follows an increase in the repo rate by the Central Bank.
White told the T&T Guardian rates have been low for a long time and pointed out that the repo rate is the benchmark for raising the rate of loans.
“Why were rates so low for so long?” he asked.
“Rates are the lowest they have been for years. The banks average spent interest rate in 2000 was 15.2 per cent. Now it is 7.2 per cent, literally half of what it used to be.”
In an interview with CNC3 last week, financial analyst Ved Seereeram criticised the Central Bank and the commercial banks for the move to increase the cost of borrowing.
He said the excess liquidity in the banking system does not warrant an increase in prime lending rates.
In response, deputy managing director of Republic Bank, Nigel Baptiste said: “The T&T dollar liquidity is affected by any number of variables from the sale of foreign exchange to the financial system in reserve requirements.
“There is no pressure on the banks to move the prime in response to movements in repo.
“We have traditionally sought to maintain the relationship between repo and prime and have moved our rates every time repo has changed.”
Baptiste admitted that businesses will be affected by the changes.
“Changes in prime tend to be reflected immediately on overdraft facilties and new ordinary loans while taking a bit more time to work itself through longer term loans, such as commercial mortgages.
“My view, however, is that in the medium to longer term, the cost of borrowing for all businesses will increase.”
Finance Minister Larry Howai, who said he approved of the changes, explained: “We need to start to tighten now and with the US set to increase rates, we need to consider the implications for markets everywhere and for foreign exchange reserves.”
Howai said he is yet to observe a “significant impact” on raising rates so far. Using the motor vehicle business as an example, he said given the high level of consumer demand, slowing of consumption would not be seen as “necessarily a bad thing.”
Prime lending rates at commercial banks currently range between 8.5 to 8.75 per cent.