Thursday, January 29, 2009

Junta Monetaria Drops Prime Rate .25 Percent

The Monetary Board (JM) today announced that it lowered the seven day prime interest rate by 0.25 percentage points. This move puts the anti-inflationary control at 7 percent.

According to the chairperson of the Junta Monetaria, Banguat, and Maria Antonieta del Cid de Bonilla, this is in response to the recent reduction in prices, mainly fuel and food. These prices continue to decline and further downward movements in the interest rate are possible in the future.

This is the first time that the prime rate has been lowered since it was first introduced in 2005. Last year, the prime rate was increased twice, in March and July, up to 7.25 percent. The prime interest rate is the main tool used by the Banguat to control price levels and that motivates banks to invest in securities issued by Banguat rather than loans.

At the end of last year the inflation rate was 9.4 percent. It is expected that due to the global economic slowdown the rate of inflation will slow further in coming months.

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