Dr. Ramesh Gampat SN letter September 8, 2024 questioned the ‘credibility of inflation data’ by the Bureau of Statistics namely, the annual inflation rate for 2023. The number used lies somewhere between 1.6 percent and 2 percent. These numbers are inconsistent with financial system data.
Guyana’s Consumer Price Index for January 2023 was 130.7%, ending at 132.4% in December 2023, an increase of 1.7%. The Consumer Price Index for 2023 represents the annual rate of inflation. The Bank of Guyana estimates the inflation rate at 2%, after rounding the 1.7% increase in the Consumer Price Index for year 2023. A consistency check with the financial system reveals that the Bureau of Statistics annual inflation rate for 2023 was abysmally low at 1.6 or 1.7 percent. (See Bank of Guyana Annual Report 2023 pages 9 and 144). An inflation indicator for a commercial mortgage rate reveals an Inflation Risk Premium that an institution must cover in their long term lending.
The Inflation Risk Premium reflects the annual inflation rate. For the Hand-in-Hand Trust Corporation Commercial Mortgages in 2023 was 13 percent (constant January through December 2023) (See page 144, BoG Annual Report 2023). Inflation Risk Premium 12.01 percent plus the Government risk-free Treasury Bill Rate (0.99%, 364 days in 2023) equals the Mortgage Rate, 13 percent. The inflation risk premium 12.01 percent points toward the inflation rate in the Guyana economy, a far way from the 1.6 or 2 percent.
Incidentally, the New Building Society’s Mortgage rate is an administered rate. This was set for 2023 at 4.73%. It is a non-market rate administered for the benefit of members of that society. Other set mortgage rates between 4 and 5 percent are also packaged ‘to provide assistance to eligible borrowers who wish to purchase land and/or construct a residential property’. These low mortgage rates are not Commercial Mortgage rate and are non-competitive pricing rates targeting first-time home owners/borrowers, with multiple conditionalities. Any derived Inflation Risk Premium on these rates may not reflect the true inflation rate in the economy.
For example, at a 5 percent mortgage the implied inflation risk is 4.01 percent after the lender controls the borrower’s risk factors through various conditions on the mortgage loan. The 4.01 percent also points to higher than the 2 percent inflation rate for 2023.
Sincerely,
Ganga Persad Ramdas
Retired Professor, Lincoln
University and
Former Division Chief, Bank of
Guyana
