TRINIDAD AND The Central Bank of Tobago warned yesterday that domestic food prices may be under upward pressure, even as the institution sees indicators that point to a slow recovery in the non-energy sector.
The comments were made in the Central Bank’s quarterly Monetary Policy Announcement (MPA), in which the Bank provides a snapshot of the current credit status and price pressures, while describing its main interest rate, the exchange rate. repurchase. The Central Bank maintained the repurchase or repurchase rate at 3.50 percent. The repurchase rate is the rate at which commercial banks repurchase Central Bank bonds.
Discussing price pressures in the economy, the Central Bank said inflation remained contained at 0.8 percent (year on year) in February 2021, with food inflation decelerating to 2.3 percent after rising to 5.1 percent in November 2020.
“However, the recent increase in animal feed costs and off-season weather patterns may provide some impetus for prices to rise in the coming months,” according to the Bank.
On the issue of the domestic economy, the World Bank said that conditions have not yet fully stabilized due to the Covid-19 shock.
He said that during the fourth quarter of 2020, the energy sector experienced significant declines in the production of natural gas, liquefied natural gas and petrochemicals.
But, on the other hand, he noted: “The indicators monitored by the Central Bank suggest that activity in the non-energy sector is recovering slowly, fueled by the construction and finance and insurance sectors.”
Decline in loan demand
The Central Bank pointed out that its March 2020 monetary policy actions – when it cut the repurchase rate from 5 percent to 3.5 percent and reduced its primary compulsory deposit from 17 percent to 14 percent – had one year to go. work. through the financial system.
“Liquidity remains high, but fell to a daily average of around $ 8 billion in March 2021, from record levels of almost $ 15 billion in late 2020, mainly due to government loan operations.
The Bank noted that T&T interest rates continued to decline, with the commercial banks’ weighted average lending rate falling to 7.29 percent in December 2020.
“However, lower interest rates and ample liquidity have not produced a very strong credit response from the private sector. Credit granted by the consolidated banking system decreased by 0.9 percent (year-on-year) in December 2020, with credit to companies and consumption decreasing by 4.7 percent and 2.1 percent, respectively. In the corporate credit line, however, there was evidence of an increase in credit activity in the construction sector and in the manufacture of food, beverages and tobacco, ”according to the Bank.
He noted that home mortgage lending remained resilient, growing 3.7 percent, but that “overall, many individuals and companies seem reluctant to increase their debt commitments in an economic climate still marked by uncertainty, while on the supply side, banks remain cautious in assessing customers’ ability to repay. ”
Foreign reserve slippage
According to the Central Bank: “With regard to the country’s external accounts, the level of official international reserves dropped from US $ 6.95 billion at the end of 2020 to US $ 6.66 billion in mid-March 2021 (about eight months of import coverage).
“In the context of an international perspective of improvement, the Monetary Policy Committee (MPC) maintained the view that the deep declines experienced by the domestic energy sector in 2020 should not persist in 2021 and the non-energy sector appears to be in an initial phase of correction. The Committee’s assessment was that the current financial conditions allowed more room for credit expansion, without undue pressure from demand on inflation.
“At the same time, Trinidad and Tobago’s external balance situation was also carefully considered, as reflected in some currency restrictions and low interest rate differentials – 16 basis points between domestic and United States three-month Treasury bills. “
Taking all factors into account, the MPC agreed to keep the repurchase rate at 3.50 percent. The next Monetary Policy Announcement is scheduled for June 25, 2021.
Reply Covid
The Central Bank said: “The global economy is on a path to recovery in 2021, as the deep shocks precipitated by the Covid-19 pandemic gradually subside. The updated projections of the International Monetary Fund point to a global economic contraction of 3.5 percent in 2020, followed by an estimated expansion of 5.5 percent in 2021.
“In this scenario, the pace of implementation of Covid-19’s national vaccination programs is expected to have a strong influence on growth rates in individual territories. “Strong fiscal support continued around the world to address the health and economic challenges caused by the pandemic – the medium-term effects of such expenditures on the dynamics of public sector debt are already involving the international financial community.
“Central banks in developed countries have maintained extraordinary support for monetary policy, mainly through considerable asset purchase operations. In emerging markets, some monetary authorities raised their interest rates in March 2021 amid concerns about impending inflation. “