Eastern Caribbean Currency Union (ECCU) economy expanded last year, slow down in 2008 expected due to rising food and commodity prices

BASSETERRE, ST. Kitts (CUOPM) – Economic activity in the member territories of the Eastern Caribbean Currency Union (ECCU) is estimated to have expanded five percent last year, but slower growth is expected this year due to slowing global economy and rising food and commodity prices.

Governor of the Eastern Caribbean Central Bank (ECCB) Sir K. Dwight Venner reported at the institution’s 62nd Monetary Council Meeting in Antigua on Friday, that deposits in the banking system expanded by 9.5 percent for the first the first four months of this year, reflecting the relatively strong economic growth experienced during the period.

Sir K. Dwight Venner

“Economic activity is estimated to have expanded by 5.2 percent in 2007, following growth of 6.3 percent in the previous year and has continued to expand in the first quarter of 2008,” said a communiqué issued at the end of the meeting.

The Bank’s Governor reported continued robust growth in credit facilitated by more favourable lending terms and conditions from commercial banks, especially for loans to households. For the period, domestic credit increased by 16.9 percent, the bulk of this credit being extended for personal mortgages.

Commercial bank liquidity remained well within prudential limits despite the significant expansion in credit. This was due to the fact that commercial banks financed the expansion in part by borrowing from abroad and drawing down on their external assets.

Sir Dwight also reported that the level of the Central Bank’s foreign reserves continued to increase and was consistent with the requirements for maintaining the strong peg to the United States dollar.

“The real effective exchange rate (REER) continued its downward trend mirroring the decline in the US dollar against major currencies. This depreciation in the REER would have enhanced the international competitiveness of ECCU exports to non-US destinations, and in particular the tourism product,” said the communiqué.

The Monetary Couincil further noted that against the background of a slowing global economy and rising food and commodity prices, the outlook for the rest of 2008 projects slower economic growth in the economies of the ECCU.

“With regard to monetary and credit conditions, it was noted that some moderation in the growth of both deposits and domestic credit is forecasted, reflecting the slowdown in growth in the domestic economy,” it said.