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Positive move by Central Bank
The decision by the Monetary Policy Council of the Central
Bank to lower interest rates by 25 basis points is welcomed
and reflects similar moves made by the Federal Reserve in the
US and by the European Central Bank last week.
The ECB has resisted pressures to cut down on interest rates
despite growing evidence of a slowdown in the euro area but
finally made the cut last Thursday by 25 basis points to 4.25
per cent. The Maltese Central Bank, following in the ECB’s
footsteps announced on Friday that it was also cutting interest
rates to 4.5 per cent from 4.75 per cent. All other official
interest rates quoted by the Central Bank have been lowered
by 25 basis points.
The Central Bank has been quite cautious over the past months
to announce a rate cut although economic indicators have shown
that Malta is experiencing a slowdown. Last week’s decision
will undoubtedly be welcomed by the industry and the government.
Lower interest rates will hopefully help to spur growth and
investor confidence although the effects will only be seen within
a couple of months.
While some critics may feel that the Central Bank’s decision
to lower rates comes a bit late in the day, there is no doubt
that such a move is aimed at stoking the Maltese economy and
easing the burden on government’s interest payments. The
Central Bank’s decision was taken after considering recent
international and domestic economic and financial developments
within the context of the objectives of the bank’s monetary
policy.
“Reviewing international developments the Council noted
that, since the beginning of the year, central banks have been
cutting interest rates in the wake of a pronounced slowdown
in global economic activity. As a result, the synthetic interest
rate, or the average interest rate on the component currencies
of the Maltese lira basket, dropped significantly below interest
rates in Malta. This has contributed to an easing of pressures
on the external reserves and the balance of payments. Today’s
cut in official interest rates still leaves Maltese lira interest
rates at a level which the Council believes to be compatible
with the sustainability of the exchange rate peg,” the
Central Bank said in a statement.
The Central Bank also said that developments in the domestic
economy were compatible with a limited interest rate cut.
“There was no evidence of excessive demand pressures, as
economic growth was observed to have slowed down in line with
international trends, although rising inflation remains a concern.”
One would be foolish to expect the country’s economy to
improve overnight just because of this minor rate cut, however
it is a sign that the Central Bank’s monetary policy council
is taking a good look at what is happening. It is also unfair
that the Opposition has criticised the Central Bank. By simply
stating that such a move was only aimed at easing the burden
on government repayments is only partly true. An interest rate
cut will surely be of benefit to the government, yet an interest
rate cut can go a long way towards reviving investor interest.
The Malta Business Weekly feels the Opposition is not right
in criticising the Central Bank’s decision. The latter
has been extremely cautious before and, as an autonomous entity,
is not easily influenced, irrespective of who is in government.
The Central Bank has finally made a move that is indicative
of the situation in Malta at present. This is made very clear
in the last part of the bank’s statement. “Regarding
the future prospects for the Maltese economy, the Council reiterates
the importance of further consolidation of the fiscal sector
and of structural reform to safeguard the economy’s long-term
competitiveness.”
Bad publicity
The recent spate of articles criticising the local tourism
industry and Malta in general has caused considerable damage
to the island. Without going into the merits of whether the
articles were factual or gross exaggerations is not the scope
of the editorial, however it does raise some pertinent points.
The Malta Business Weekly recently warned that greater care
has to be given to the product being offered to tourists. They
are paying good money to visit the country and all they want
in return is a good service and a pleasant stay.
Malta has so much to offer yet we tend to fail on those matters
that many take for granted. The negative publicity on UK television
and in one Dutch newspaper has only made matters worse. The
country and its citizens are partly to blame and the effects
of bad publicity can only be countered if everyone does his
or her utmost to improve the product we offer to visitors.
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