The central bank also observed a slight slowdown in economic activity due to the evolution of private domestic investment and consumer spending, which decreased as a result of increases in prices.

The central bank also revised its forecasts for inflation, which is expected to stand at between 2.5% and 3.5% for 2007, as opposed to the more optimistic expectations voiced in September of last year, which predicted that the consumer price index would rise between 0.5% and 1.5%. Burgo explained that this increase could come as the result of a potential bad harvest’s influence on non-industrialized goods and by inflation on a worldwide scale.

The central bank governor also explained that the revised inflation rate came as a result of continued increases in world petroleum prices. “I understand that consumers’ purchasing power must be defended, but salary revisions have to be moderate because otherwise we will run the risk of losing competitiveness for having raised the per-unit cost of labor with workers’ wages. And if we lose competitiveness, economic growth will fall behind,” he stressed.

Indeed, prices in March were 5.6% higher than those in the same month last year, a hike reflected mainly in electricity and industrialized food products. On the other hand, decreases in the price of international airline tickets, international telephone communications and public transportation were also registered.

The Bank of Cape Verde predicts that in 2007 the growth in Cape Verde’s GDP will stand at between 6% and 7% due to expected increases in consumer spending and investment, namely foreign investment.

Burgo added that “outlook was favorable in Europe, which influences Cape Verde in a decisive manner, as that is where the countries that send the most tourists to Cape Verde and that hose the largest Cape Verdean communities are located.”

The central bank also saw an increase in the commercial deficit between October 2006 and March 2007, the period analyzed by the report, as a result of an increase in imports.

The accumulation of foreign reserves at the central bank and of foreign liquid assets on the parto f commercial banks produced an increase in the quantity of cash in circulation on the order of 3.4%.

The central bank actively issued Monetary Intervention Bonds aimed at absorbing part of the excessive liquidity in the banking system in order to combat inflationary tendencies.

The central bank also revealed that net domestic credit rose 1.8%, while credit to the public sector dropped, reflecting the positive impact of credit on the economy, which grew 4.1% since December.

Following the principles of the IMF’s Policy Support Instrument, the Bank of Cape Verde will continue to monitor the evolution of foreign reserves, which at present are equivalent to 3.2 months of imports, as well as the management of the differential between interest rates in the Euro zone, especially the Euribor, and the Bank of Cape Verde’s own intervention operation rate, as rates continue to rise on international markets.

Source A |Semana