TRINIDAD AND THE CENTRAL BANK OF TOBAGO warned yesterday that domestic food prices could be under upward pressure, even as the institution sees indicators that point 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 kept the repurchase or repurchase rate at 3.50 percent. The repurchase rate is the rate at which commercial banks repurchase Central Bank securities.
In discussing price pressures in the economy, the Central Bank said that headline inflation remained contained at 0.8 percent (year-on-year) in February 2021, and that food inflation slowed to 2.3 percent after rising to 5.1 percent in November 2020.
“However, the recent increase in animal feed costs and non-seasonal weather patterns may give an upward push for prices in the coming months,” according to the Bank.
On the issue of the domestic economy, the Bank said that conditions have not yet fully stabilized since the impact of Covid-19.
He said that during the fourth quarter of 2020, the energy sector experienced significant year-on-year declines in the production of natural gas, liquefied natural gas and petrochemicals.
But, on the other hand, he pointed out: “The indicators monitored by the Central Bank suggest that the activity of the non-energy sector is slowly recovering, driven by the construction and finance and insurance sectors.”
Decreased demand for loans
The Central Bank noted that its monetary policy actions in March 2020, when it reduced the repurchase rate from 5 percent to 3.5 percent and lowered its mandatory primary reserve from 17 to 14 percent, have had a year to work. way through the financial system.
“Liquidity remains high, but has fallen to a daily average of around $ 8 billion in March 2021 from record levels of about $ 15 billion at the end of 2020, mainly due to government borrowing operations. .
The Bank noted that interest rates on T&T have continued to decline, with the weighted average loan rate from commercial banks falling to 7.29 percent by December 2020.
“However, lower interest rates and ample liquidity have not elicited a very strong credit response from the private sector. Credit granted by the consolidated banking system decreased 0.9 percent (year-on-year) in December 2020, and business and consumer credit contracted 4.7 percent and 2.1 percent, respectively. However, within the heading of business credit, there was evidence of greater credit activity in the construction sector and the manufacturing of food, beverages and tobacco, ”according to the Bank.
He noted that real estate mortgage loans have remained resilient, growing 3.7%, but that “in general, 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 continue to be cautious in assessing clients’ repayment capacity ”.
Foreign reserves are slipping
According to the Central Bank: “With regard to the country’s external accounts, the level of official international reserves went from US $ 6.95 billion at the end of 2020 to US $ 6.66 billion in mid-March 2021 (about eight months of coverage imports).
“In the context of a better international outlook, the Monetary Policy Committee (MPC) held the view that the deep declines experienced by the national energy sector in 2020 were not expected to persist in 2021 and the non-energy sector appears to be in a early correction phase. The Committee’s assessment was that current financial conditions allowed more room for credit expansion without undue demand pressure on inflation.
“At the same time, Trinidad and Tobago’s external balance situation was also carefully considered, as reflected in some exchange rate rigidity and low interest rate differentials: 16 basis points between the national and US three-month Treasury bonds.”
Taking all factors into account, the MPC agreed to keep the repurchase rate at 3.50%. The next Monetary Policy Announcement is scheduled for June 25, 2021.
The Central Bank said: “The world economy is on a recovery path in 2021 as the deep shocks precipitated by the Covid-19 pandemic gradually subside. Updated projections from the International Monetary Fund point to a global economic contraction of 3.5% in 2020, followed by an estimated expansion of 5.5% in 2021.
“Within this scenario, the pace of implementation of national Covid-19 vaccination programs is expected to have a strong influence on growth rates in individual territories. “Strong fiscal support has continued around the world to address the health and economic challenges brought on by the pandemic; the medium-term effects of such spending on the dynamics of public sector debt are already involving the international financial community.
“The central banks of developed countries have maintained extraordinary support for monetary policy, mainly through major asset purchase operations. In emerging markets, some monetary authorities raised their policy rates in March 2021 amid concerns about impending inflation. “