Friday, January 31, 2014

Trinidad & Tobago holds rate, sees no disruptive flows

    Trinidad and Tobago's central bank maintained its repurchase rate at 2.75 percent, saying its accommodative policy stance is still appropriate and it had not seen any evidence of disruptive portfolio flows following the U.S. Federal Reserve's decision to start reducing asset purchases.
    The Central Bank of Trinidad and Tobago, which last cut its rate by 25 basis points in 2012, also said the country's energy sector had expanded in the fourth quarter following completion of significant and coordinated maintenance by two major natural gas producers and the downstream industry.
   Natural gas output was more than 8 percent higher in the fourth quarter than the third, boosting methanol and ammonia production, the bank said.
    "This rebound in the energy sector, coupled with the expected continued growth in the non-energy sector, suggests that the domestic economic recovery is continuing to gain traction," the bank said.
    Inflation is largely contained, with the annual rate rising to 5.6 percent in December from 4.4 percent in November. Core inflation, however, was steady at 2.0 percent, and ranged from 1.9-3.1 percent for 2013 as a whole.

    Food prices accelerated to 10.2 percent in December from November's 7.3 percent, and the bank said  oil spills in December could lead to "some up-tick in fish prices and place upward pressure on food inflation."
    The country's Gross Domestic Product contracted by an annual rate of 0.5 percent in the third quarter  following a 1.15 percent annual contraction in the second quarter, for nine-month growth of 1.3 percent. This prompted the central bank in December to revise its 2013 growth outlook to 1.5 percent, down from May's forecast of 2.5 percent.
    For 2014 the bank has forecast GDP growth of 2.5 percent.
    The Fed's decision to start winding down quantitative easing had "prompted a narrowing of the interest rate differential between longer term TT and US treasury bonds, but evidence of disruptive portfolio flows has not been observed," the central bank said.
    As on Jan. 24, the differential between Trinidad & Tobago and U.S. 3-month treasury rates was 1 basis point, while the differential between the country's 10-year bond and U.S. treasury securities is minus 12 basis points, down from minus 44 points in December, as U.S. yields have recently declined "amidst a fresh wave of international concerns over emerging markets and indications of higher yields on TT securities," the bank said.


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