The central bank of TRINIDAD AND TOBAGO warned yesterday that domestic food prices could be under upward pressure, even as the institution sees indicators pointing to a slow recovery in the non-energy sector.
The comments came in the Central Bank’s quarterly Monetary Policy Announcement (MPA), in which the Bank provides a snapshot of the current state of credit and price pressures, while outlining its key policy rate, the repo rate. The Central Bank maintained the repo or repurchase rate at 3.50 percent. The repo rate is the rate at which the commercial banks buy back securities from the central bank.
When the Central Bank discussed price pressures in the economy, the Central Bank said headline inflation remained within 0.8 percent (year-on-year) in February 2021, while food inflation slowed to 2.3 percent after rising to 5 percent. , 1 percent in November 2020.
“However, the recent hike in animal feed costs and unusual weather patterns may provide an upward boost to prices in the coming months,” said the Bank.
On the issue of the domestic economy, the Bank said conditions should not fully stabilize after the Covid-19 shock.
It said the energy sector had significant year-on-year production cuts for natural gas, liquefied natural gas and petrochemicals in the fourth quarter of 2020.
But on the other hand, it noted, “Indicators monitored by the Central Bank suggest that non-energy activity is slowly recovering, fueled by construction, finance and insurance.”
Declining demand for loans
The Central Bank pointed out that its March 2020 monetary policy measures – when it cut the repo rate from five percent to 3.5 percent and lowered its primary reserve requirement from 17 percent to 14 percent – had had a year to work. a way through the financial system.
Liquidity remains high, but has fallen to a daily average of about $ 8 billion in March 2021 from record highs of nearly $ 15 billion in late 2020, mainly due to government borrowing.
The bank noted that interest rates in T&T have continued to fall, with the weighted average lending rate of the commercial banks falling to 7.29 percent by December 2020.
However, lower interest rates and ample liquidity have not resulted in a very strong private sector credit response. Lending through the consolidated banking system declined 0.9 percent (year-on-year) in December 2020, with lending to businesses and consumers declining by 4.7 percent and 2.1 percent, respectively. Within the corporate credit section, however, there were indications of increased credit activity in the construction sector and food, beverage and tobacco production, ”said the Bank.
It noted that real estate mortgage loans have remained resilient and have grown by 3.7 percent, but that “in general, many individuals and businesses seem reluctant to increase their debt obligations in an economic environment still characterized by uncertainty, while banks remain cautious on the supply side in assessing the repayment capacity of customers ”.
Foreign reserves slip
According to the Central Bank, “With regard to the country’s external accounts, the level of official international reserves fell from $ 6.95 billion at the end of 2020 to $ 6.66 billion in mid-March 2021 (approximately eight months of import coverage).
“In the context of an improving international outlook, the Monetary Policy Committee (MPC) continued to believe that the deep downturn that the domestic energy sector experienced in 2020 is not expected to continue into 2021 and that the non-energy sector is at an early stage of correction. The Committee considered that the current financial conditions left more room for credit expansion without excessive demand pressure on inflation.
“At the same time, the situation on Trinidad and Tobago’s external equilibrium was also carefully taken into account, as reflected in some tightness in foreign exchange and low interest rate spreads – 16 basis points between domestic and US three-month government bonds.”
Taking all factors into account, the MPC agreed to keep the repo rate at 3.50 percent. The next monetary policy announcement is scheduled for June 25, 2021.
Covid reaction
The Central Bank said: “The global economy is on a recovery path in 2021 as the deep shocks caused by the Covid-19 pandemic gradually subside. Updated projections from the International Monetary Fund point to a global economic contraction of 3.5 percent in 2020, followed by an estimated growth of 5.5 percent in 2021.
“In this setting, the pace of implementation of national Covid-19 vaccination programs is expected to have a strong impact on growth rates in individual territories. “Strong fiscal support has continued globally to address the health and economic challenges posed by the pandemic – the medium-term effects of such spending on public sector debt dynamics are already underway with the international financial community.
“Central banks in developed countries have maintained their exceptional monetary policy support, mainly through sizeable asset purchases. In emerging markets, some monetary authorities hiked their policy rates in March 2021 amid concerns about impending inflation. “