Friday, November 24, 2017

Trinidad & Tobago holds rate on nascent energy recovery

      Trinidad and Tobago's central bank left its benchmark repo rate at 4.75 percent, noting the "nascent recovery in the domestic energy sector and the low inflation rate" but also the slow pace of lending to businesses and the possibility of a further narrowing of the interest rate differential between domestic and U.S. interest rates.
       The Central Bank of Trinidad and Tobago (CBTT) has maintained its rate since December 2015 as the economy slowly recovers from two years of recession due to low energy prices that have boosted fiscal and current account deficits.
       But data for the third quarter show rising oil and gas production and a positive spillover to the non-energy sector is expected if the higher energy output is maintained, the bank said.
       Trinidad & Tobago's Gross Domestic Product contracted by an annual rate of 3.2 percent in the second quarter, the 11th consecutive quarter of negative growth, but better than a 6.9 percent contraction in the first quarter.
       Last month the International Monetary Fund (IMF) forecast a 3.25 percent fall in 2017 GDP after a 6.0 percent fall in 2016. For 2018 the economy is seen growing by 1.9 percent.
       The weak economy has contained inflation, which fell to a 2017 low of 1.2 percent in September from 1.3 percent in August.
       The IMF has forecast 3.2 percent average inflation this year and next year.
       In its statement, the central bank's monetary policy committee said it had changed the schedule for its regular meetings to quarterly from bi-monthly, with the next meeting scheduled for March 29.
        The Trinidadian dollar was trading at 6.7 to the U.S. dollar today, unchanged this year.

       The Central Bank of Trinidad and Tobago issued the following statement:

"Since the last meeting of the Monetary Policy Committee (MPC) in September 2017, the International Monetary Fund raised its projections for global growth. In addition several of the advanced economies have gradually moved towards monetary policy normalization. It is widely anticipated that the US Federal Reserve will increase the Fed Funds rate in December 2017 and follow with similar actions in 2018. There has also been some firming of international energy prices.

Domestically, indicators suggest that there was slow activity in both the energy and non-energy sectors in the first half of 2017. However, statistics for the third quarter show that oil and gas production has increased in the context of higher output from BPTT’s Juniper facility. A positive spillover effect to the non-energy sector is anticipated if the higher energy production is maintained.

Inflation has remained well contained through 2017 partly due to the subdued economic conditions. Headline inflation measured 1.2 per cent in September 2017 (year-on-year) with core inflation easing to 1.1 per cent and food inflation measuring 1.8 per cent. Other price indicators, such as at the wholesale level and for construction materials, showed similar patterns.

New information on the financial institutions reveals that private sector credit growth remains restrained. Overall lending to the private sector increased marginally in September 2017 to 3.7 per cent (year-on-year); this was largely due to growth in real estate mortgage loans (6.7 per cent) and loans to consumers (4.5 per cent) as lending to businesses was muted at 0.4 per cent. Liquidity in the banking sector crept up in last three months, with daily commercial banks’ excess reserves at the Central Bank averaging $2,778 million over the first two weeks in November.

The MPC in its deliberations noted the positive global economic developments, the nascent recovery in the domestic energy sector and the low inflation rate. The MPC also took cognizance of the slow pace of lending to businesses as well and the possibility of a further narrowing of the TT-US interest rate differential. After taking all these factors into consideration, the MPC agreed to hold the repo rate at its current level of 4.75 per cent. The Bank will continue to carefully monitor and analyze international and domestic developments.

The next Monetary Policy Announcement is scheduled for March 29, 2018 1)

1) At the November 2017 meeting a decision was taken to adjust the periodicity of the regular MPC meetings from bi-monthly to quarterly in 2018, while allowing for the ability to convene extraordinary meetings if circumstances warrant. "


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