The Central Bank of Trinidad and Tobago has announced that it is maintaining T&T’s repo rate at 3.50 per cent.
In its quarterly Monetary Policy Announcement on Friday, the Central Bank noted a sharp increase in inflation, particularly the escalation in the price of food.
The Central Bank said: “Headline inflation rose to 5.9 per cent (year-on-year) in July 2022, up from 4.9 per cent in June.
“The price rises were fairly broad-based. Food inflation reached 10.3 per cent in July while core inflation (which excludes food items) measured 4.9 per cent.”
It added that the first-round effect of the increase in fuel prices that took effect in late September—a reference to Monday’s 2023 budget announcement of increases in the price of gasoline by $1 and diesel by $0.50—is expected to be reflected in the inflation outcome in the final quarter of this year.
The Central Bank also noted that its interest rate policy—it has maintained the repo rate at 3.50 per cent since March 2020—as well as financial indicators point to ample liquidity and strengthening credit demand.
It said: “Commercial banks’ excess reserves at the Central Bank amounted to $4.4 billion in mid-September 2022. Credit to the private sector expanded by 6.6 per cent in July. This was driven by robust growth in business loans, a turnaround in consumer credit, and buoyant real estate mortgage lending.
“On the business side, there were notable increases in loans for construction, manufacturing and distribution.”
“In the context of US Fed policy moves, the TT/US interest differential on 3-month treasuries reached 236 basis points (2.36 per cent) in August 2022,” according to the Central Bank. The differential would have increased even more following the US Fed’s September 21 interest rate increase. A growing differential between T&T and US interest rates tends to encourage capital flight, as institutions and high-net worth individuals seek to place funds in higher yielding US bonds instruments.
The Central Bank said: “In its deliberations, the Monetary Policy Committee (MPC) took note of the current uncertainty on the global front and inflationary pressures that were spilling over to Trinidad and Tobago.
“At the same time, there were encouraging signs of a revival of credit in support of domestic business expansion.”
The Bank added: “Many central banks continued to raise policy rates as inflation soared past target levels. Leading the charge, in its latest move the United States Federal Reserve (US Fed) hiked the Fed funds target range by 75 basis points to 3.00 to 3.25 per cent in September 2022.”
The spillover to financial markets has been severe, the Central Bank noted, with tremendous volatility experienced in equity valuations and exchange rate pressures in several countries.
Domestically, Central Statistical Office (CSO) data point to a marginal decline in real GDP by per cent (year-on-year) in the first quarter of 2022.
That marginal decline was as a result of energy sector output contracting by 5.1 per cent while non-energy GDP increased by 2.2 per cent.
The energy sector was hampered by declines in natural gas production and LNG refining, while non-energy growth was driven by strong performances in the manufacturing and transport and storage sub-sectors.
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