Fighting signs of inflation, Central Bank of Seychelles tightens monetary policy; rate set at 5.5 pct

The Central Bank building. (Seychelles News Agency) 

(Seychelles News Agency) - The Central Bank of Seychelles has decided to slightly tighten the policy stance for the first quarter of 2019 in order to secure stability in domestic prices and to reduce inflation, a top official said on Friday.

The governor of the Central Bank of Seychelles (CBS), Carolina Abel, said that the decision is due to inflationary impulses originating from factors in the budget of 2019 including the salary revision, the 13th-month salary and different taxes that will be applied to commodities. 

“We should look closely at how people are spending their money especially those getting the 13th-month pay as it important that they don’t spend a lot to put pressure on domestic prices. People should adopt the culture of saving although they are getting more money,” said Abel.

As a result of the revised monetary policy framework, the focus will shift from targeting reserve money with the objective of indirectly influencing the intermediate target of money supply growth, to guiding short-term interest rates.

The Central Bank of Seychelles is going to introduce a new rate that will determine what type of interest rate to use when transacting with commercial banks.

The new monetary policy rate will be set at 5.5 percent and will signal the monetary policy stance going forward. A rise in the rate will indicate a tightening, while a fall will signal a loosening of the policy stance.

For the first quarter, the bank will introduce a minimum interest rate of 2.5 percent that will be transacted with commercial banks if they deposit their excess money with Central Bank. Another measure -- a credit facility at a rate of 8.5 percent if banks borrow money with the Central Bank -- will also be put in place.

As Seychelles’ economy relies heavily on imports, external developments indicate dampened inflationary pressures.

“Global commodity prices, particularly oil prices, are expected to fall in 2019, with future oil prices to be impacted by the anticipated increase in global production,” said Abel.

The governor of CBS said that inflation is expected to continuously increase slightly due to credit facility going to individual consumption rather than going to sectors that can earn the country revenue.

The Seychelles’ tourism industry remains the main driver of the country’s economic performance in spite of the uncertain outlook on the stability and depreciation of the dollar, she added.  

The Central Bank of Seychelles recorded an equivalent of over $520 million (SCR7.1 billion) in earnings from the tourism industry. From the start of the year to December 9, Seychelles has welcomed 334,719 visitors to its shores.

Abel said this outcome is associated with positive growth in the number of visitors from Europe, supported by increased direct air connectivity following the arrival of new airlines in 2018, namely British Airways, Joon, and Edelweiss Air.

Abel added that the fisheries, the second pillar of the economy, is doing fairly well, as the projection of tuna export is expected to continuously increase next year.

The outlook for this year indicates a gradual increase in the Gross Domestic Product (GDP) growth.

She added that “for the upcoming months CBS will remain vigilant on the economic performance and take actions where necessary so that the macroeconomic position remains stable.”