The Central Bank of Trinidad and Tobago, which has kept its rate steady since September 2012, said core inflation was relatively stable in the first half of the year, but "rising consumer demand, higher government spending and second round effects from the recent increase in cement prices could help accelerate inflationary pressure later in the year."
Trinidad's headline inflation rate slowed to 3.0 percent in June from 3.08 percent in May while core inflation was 2.5 percent and food inflation eased for the third consecutive month to 3.5 percent.
Trinidad's corporate sector is cautiously optimistic in its outlook, with the central banks survey in the second quarter showing almost 80 percent of firms expecting to raise production in the next six months and more firms were confident that the local economy would improve over the next 12 months compared with the previous survey.
A recovery in business lending and steady growth in consumer loans are supporting the positive business sentiment, with private sector credit up by more than 6.5 percent in May, the fastest rate since February 2009. Business lending grew for the fourth consecutive months, also by around 6.5 percent in May, while consumer lending grew by around 7.5 percent in May.
The Central Bank has made its most recent intervention into the domestic foreign exchange market, pumping US$100 million into the system yesterday.
In a release yesterday, the bank said this latest intervention was timed to offset anticipated lower inflows into the foreign exchange market in the coming weeks as a result of expected lower conversions by energy companies and to alleviate demand pressures ahead of the busy travel season.
In June 2014 there was an excess of US$90 million in the banking system as the supply of foreign exchange exceeded demand. Supply was strong, as energy companies converted US$483 million to meet their quarterly tax obligations; Central Bank had also injected US$80 million into the system.
In June, the highly liquid foreign exchange market resulted in the selling rate by banks to consumers falling almost ten cents, from $6.45 to US$1, to $6.35 to US$1—the lowest level in four years. For the first six months of 2014, the Central Bank sold $US690 million to the financial system, or equivalent to one-fifth of the total supply of foreign exchange to the market. With yesterday’s intervention, the total sales of foreign exchange by the Central Bank to the banking system amounts to US$790 million for the year to date.
The bank continues to monitor conditions in the domestic foreign exchange market, and will take further action, if necessary, the release said.