The Central Bank of TRINIDAD and TOBAGO warned yesterday that domestic food prices could be under upward pressure, even though the institution sees indicators suggesting a slow recovery in the non-energy sector.
The comments appeared in the Central Bank’s Quarterly Monetary Policy Announcement (GPA), in which the Bank provides a snapshot of the current state of credit and price pressures, while emphasizing its key policy rate, the repo rate. The Central Bank maintained the restitution or redemption, the rate being 3.50 percent. Repo rate is the rate at which commercial banks repurchase securities from the Central Bank.
Discussing price pressures in the economy, the Central Bank said general inflation remained limited to 0.8% (year-over-year) in February 2021, with food inflation falling to 2.3% after rising to 5.1%. in November 2020.
“However, the recent rise in feed costs and off-season weather patterns could provide some upward momentum in prices in the coming months,” the bank said.
On the issue of the domestic economy, the Bank said conditions were not fully stabilized following the Covid-19 shock.
He said that in the fourth quarter of 2020, the energy sector recorded significant decreases in production from year to year for natural gas, liquefied natural gas and petrochemicals.
But, on the other hand, he mentioned: “The indicators monitored by the Central Bank suggest that the activity of the non-energy sector is slowly recovering, fueled by the construction, finance and insurance sectors.”
Decreased loan demand
The Central Bank stressed that its monetary policy actions from March 2020 – when it reduced the repo rate from five percent to 3.5 percent and reduced its primary reserve requirements from 17 percent to 14 percent – they had a year of work through the financial system.
“Liquidity remains high, but fell to a daily average of about $ 8 billion in March 2021, from record levels of nearly $ 15 billion at the end of 2020, mainly due to government lending operations.
The bank noted that interest rates on T&T continued to decline, with the weighted average rate of commercial bank loans falling to 7.29% until December 2020.
“However, lower interest rates and ample liquidity have not generated a very strong response to private sector lending. Loans granted by the consolidated banking system decreased by 0.9 percent (year-on-year) in December 2020, with the business and consumer credit agreement being 4.7 percent and 2.1 percent, respectively. However, under the heading of business credit, there was evidence of increased lending activity in the construction sector and the production of food, beverages and tobacco “, according to the Bank.
He noted that real estate mortgages remained resilient, rising by 3.7 percent, but that “in general, many individuals and companies seem reluctant to increase their debt commitments in an economic climate still marked by uncertainty. , while in terms of supply, banks remain cautious in assessing customers’ repayment capacity ”.
Currency reserves are slipping
According to the central bank: “In terms of 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 (about eight months of coverage of imports ).
“In the context of an improved international outlook, the Monetary Policy Committee (MPC) has maintained the view that the sharp declines in the internal energy sector in 2020 are not expected to persist in 2021 and the non-energy sector appears to be in a phase incipient correction. The Committee’s assessment was that current financial conditions have allowed for additional room for credit expansion without undue pressure from inflationary demand.
“At the same time, the external balance situation in Trinidad and Tobago has also been carefully considered, as reflected in certain currency restrictions and low interest rate differences – 16 basis points between the national and US treasuries. three months.
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.
Answer Covid
The Central Bank said: “The global economy is on track to recover in 2021 as deep shocks from the Covid-19 pandemic gradually diminish. The updated projections from the International Monetary Fund indicate a global economic contraction of 3.5% in 2020, followed by an estimated expansion of 5.5% in 2021.
“In this context, the pace of implementation of the national vaccination programs Covid-19 is expected to have a strong influence on growth rates in individual territories. “Strong global fiscal support has continued to address the economic and health challenges posed by the pandemic – the medium-term effects of such spending on public sector debt dynamics already involve the international financial community.
“Central banks in developed countries have maintained tremendous support in monetary policy, mainly through significant asset purchase operations. In emerging markets, several monetary authorities raised their policy rates in March 2021 amid concerns about approaching inflation.