Trinidad and Tobago's central bank maintained its repurchase rate at 2.75 percent but said it would be intensifying its liquidity management operations in the coming period to reduce excess liquidity in the banking system that is keeping domestic treasury rates low.
The Central Bank of Trinidad and Tobago, which last cut its rate by 25 basis points in 2012, said underlying inflationary pressures remain well contained but are likely to build up later in the year as economic activity ramps up.
"In light of these circumstances, the Central Bank has decided to maintain the 'repo' rate at 2.75 percent while its liquidity absorption measures take effect. The Bank will continue to monitor developments in the market and is prepared to take further actions as appropriate," the bank said.
Liquidity eased in January before rising again in February to March, with average excess liquidity up to US$ 7.1 billion in the March 5-24 period as fiscal injections rebounded. Open market operations and central bank sales of foreign exchange to dealers withdrew $893 million in January, $831 million in February and $395 million in the first three weeks of March.
The domestic foreign exchange market remained relatively tight in February and most of March, with purchases of foreign currency by authorized dealers from the public of $691 million and sales of $872 million, with the resulting gap of some $181 million met by central bank sales to dealers.
On March 5, the central bank undertook a special intervention of $50 million to meet immediate US dollar, trade-related demand of small and medium enterprises.
High liquidity has kept short-term treasury rates low, with the interest rate differential between the TT and 3-month US Treasury rates at 1 basis point in mid-March. Longer term U.S. Treasury rates rose following the U.S. Fed announcement on March 19 that policy rates could increase even faster than initially anticipated, the central bank said.
As a result, the differential between TT and US 10-year treasury yields widened to minus 12 basis points as of March 21 from minus 3 points at the end of February, it added.
Trinidad and Tobago's inflation rate rose to 3.9 percent in February from 2.9 percent in January, but was down from 5.6 percent in December 2013.