DESPITE higher inflation, the Central Bank of Trinidad and Tobago announced yesterday that it had decided to keep its repo rate unchanged at 3.50%, signaling that it was not ready to raise the cost of ready for now.
The repo rate is the overnight rate that the Central Bank charges commercial banks and it is used to signal to banks the direction of local interest rates.
In its monetary policy announcement, the Central Bank acknowledged that international inflation has caused prices to rise in T&Ts, but the data indicates that while a recovery is underway in T&Ts, it is not firmly established.
Here is the full announcement from the Central Bank:
International inflation had also spread to Trinidad and Tobago and is expected to continue its upward trajectory. At the same time, domestic price impulses were currently externally driven, and credit and real sector activity statistics indicated a recovery that was underway, but not yet firmly established. Considering all factors, the MPC agreed to maintain the pension rate at 3.50%. The Central Bank will continue to closely monitor and analyze international and domestic developments and prospects. The overnight lending rate to commercial banks which is the outlook for the global economy is less optimistic than at the start of this year.
Indications that the conflict between Russia and Ukraine will drag on point to longer supply disruptions in energy, grain and fertilizer markets. The inflationary impact has spread around the world, aggravated in some countries by demand pressures linked to previous large expansions in monetary and fiscal policies to deal with the Covid-19 pandemic.
A number of central banks have reversed course and raised interest rates; however, monetary authorities in Japan and China did not follow suit, favoring support for domestic recoveries. Recent volatility in global stock markets has been exacerbated by fears that sharply higher interest rates could push some economies, including the United States, into recession.
High energy prices persisted despite the gradual resumption of supplies from OPEC+.
Crude oil prices (West Texas Intermediate) have fallen from an average of US$108.49 per barrel in March 2022 to US$120.93 per barrel in mid-June 2022. Natural gas prices (Henry Hub ) were equally robust, rising from US$4.88 per mmbtu to US$8.96 per mmbtu over the same period. Although the future is uncertain, such price developments have so far benefited Trinidad and Tobago’s fiscal and external accounts.
On the production front, energy production in the first quarter of 2022 was mixed: on an annual basis, crude oil increased by 2.2% while natural gas and petrochemicals fell by 5.6% and 6 .2%, respectively.
Available indicators from the non-energy sector point to a gradual recovery in 2022, amid the lifting of all restrictions on business activity compared to most of 2021. Regarding the labor market response, the latest data from the Central Statistics Office shows that the unemployment rate may have started to fall earlier, reaching 5.4% in the third quarter of 2021, compared to 7.2% at the end of 2020. Meanwhile, this rate was higher than the 4.7% published for the second quarter of 2021 and may incorporate some decrease in the number of people in the labor market, as opposed to just new jobs.
Headline inflation reached 5.1% (year-on-year) in April 2022, from 4.1% a month earlier. Food price inflation rose from 7.9% to 8.7%, reflecting higher prices for rice, margarine, edible oils and meat.
Core inflation (which excludes food) rose to 4.1% from 3.2% the previous month, partly due to the adjustment in domestic fuel prices. The prices of construction materials also recorded relatively large increases according to the available data, in particular on imported components.
Business lending continued to accelerate, increasing by 7.4% in March 2022, and driven by an increase in lending to the construction (17.5%), manufacturing (12.3%) and “other services” (10.9%).
Meanwhile, the decline in consumer loans appears to have bottomed out in March 2022, signaling that a return of consumer demand to pre-pandemic levels may be on the horizon. In particular, credit card loan growth turned positive (0.8%) in March after falling since the start of the pandemic.
Liquidity in the financial system remains abundant, with commercial bank excess reserves at the Central Bank averaging $5.3 billion at the start of June 2022.
The Monetary Policy Committee (MPC) assessed developments in the global financial environment alongside developments specific to Trinidad and Tobago and the short to medium term outlook.
The MPC noted that higher international interest rates were already reflected in interest rate spreads: US 3-month Treasury bills were about 73 basis points higher than equivalent domestic instruments in May 2022.
International inflation had also spread to Trinidad and Tobago and is expected to continue its upward trajectory. At the same time, the impulses to domestic life
prices were currently externally generated and credit and real sector activity statistics indicated a recovery that was underway but not yet firmly established. Considering all factors, the MPC agreed to maintain the pension rate at 3.50%. The Central Bank will continue to closely monitor and analyze international and domestic developments and prospects.
The next monetary policy announcement is scheduled for September 30, 2022.
The chairman of the monetary policy committee is the Governor of the Central Bank, Dr. Alvin Hilaire.