Trinidad & Tobago Holds Rate, Low Credit Demand, Inflation

This article was originally published on CentralBankNews.info on September 27, 2019. It is reproduced here with permission from the author.

The Central Bank of Trinidad and Tobago (CBTT) left its benchmark repo rate steady at 5.0 percent in light of slowing global growth, easier monetary policy by major central banks, low inflation, sluggish demand for business credit, an external balance that has yet to be restored, and an economic recovery that is not broad based.

CBTT, which has kept its rate steady since raising it in June 2018, said natural gas production was starting to normalize after being hit by unplanned shutdowns and crude oil output was steady, but expected spillovers from higher government spending on manufacturing and private consumption were not yet evident.

Trinidad & Tobago’s economy contracted 2.1 percent in the fourth quarter of last year, larger than a contraction of 1.6 percent in the third quarter, and in July S&P Global Ratings downgraded the country’s sovereign credit rating to BBB from BBB+ based on lower-than-expected energy production and economic growth that would weaken the government’s revenue base and delay its plans to balance its budget.

Credit extended to the private sector rose “moderately” to 4.5 percent in July from 3.5 percent in March, but CBTT said business credit had declined by 2.8 percent year-on-year, although this was shallower than in previous months.

Inflation in Trinidad and Tobago is “well contained,” according to CBTT, with annual inflation of 1.2 percent in August, up from 1.1 percent in previous three months, but severe flooding in September is likely to lead to a further uptick in some prices.

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

“International economic conditions remain delicate amidst rising global risks. In addition to ongoing trade tensions between the United States and China, rising geopolitical pressures in the Middle East threaten stability in oil markets, while Brexit discussions in the UK are coming to a head. The International Monetary Fund, in its July 2019 World Economic Outlook Update, revised global growth projections for 2019 further downward by 0.1 per cent to 3.2 per cent. Since then, faced with a slowdown of the US economy, the US Federal Reserve cut the Federal funds rate by 25 basis points in July and September 2019. These actions precipitated policy rate cuts by several central banks, which eased capital outflow and exchange rate pressures, especially among emerging market and developing economies. Meanwhile, in global energy markets over the past few months the price of oil trended higher surpassing US$60 per barrel in September while the price of natural gas remained relatively stable. 

Domestically, unplanned shutdowns at Atlantic LNG during the second quarter of 2019 adversely impacted natural gas production, while crude oil production had stabilized at just over 59 thousand barrels per day. Heading into the third quarter, preliminary data suggest that natural gas production has normalized and crude oil output remained steady. In the non-energy sector, preliminary data for indicators monitored by the Central Bank point to improved performances in the distribution and finance sectors during the second quarter. However, the expected spillovers from the pick-up in government capital spending on the manufacturing and private construction sectors are not yet evident.

Data from the Central Statistical Office show that headline inflation remained well contained at 1.2 per cent in the twelve months to August 2019. Core inflation was anchored at 1.0 per cent, but higher prices for vegetables (10.9 per cent) caused food prices to accelerate to 2.0 per cent – the highest rate of increase thus far for 2019. It is likely that severe flooding in September would lead to a further uptick in the price of some domestic produce. Meanwhile, labour market conditions may be softening. Data from the Ministry of Labour, Small and Micro Enterprises showed that the number of persons retrenched during the first six months of 2019 rose on a year-on-year basis.

Private sector credit extended by the consolidated financial system expanded moderately to 4.5 per cent in July 2019 (year-on-year) compared with 3.5 per cent in March 2019. However, business credit continued to decline (-2.8 per cent), but the fall-off was shallower than in previous months. Consumer credit, driven by double-digit increases in lending for debt consolidation and refinancing, grew by 6.5 per cent and real estate mortgage loans increased by a steady 8.6 per cent. Commercial banks’ daily excess reserves at the Central Bank have averaged just over $4.5 billion thus far in September 2019 after somewhat tighter conditions earlier in the year. The Central Bank has had to carefully balance the public sector’s financing requirements and credit and inflationary conditions in calibrating its liquidity operations. As such, net maturities of open market operations injected $2,180 million into the financial system during June-August 2019.

Although declining US rates have improved the interest rate gap between short term TT-US treasury securities, the differential for three-month instruments remained below parity at -67 basis points at the end of August 2019. Meanwhile, there continues to be some disequilibrium in the foreign exchange market and the Central Bank maintained its fortnightly sales of foreign currency to authorised dealers.

The Monetary Policy Committee (MPC) in its deliberations considered the changes in the external environment, especially slowing global growth and policy actions by major central banks. Locally, the available indicators suggest that the economic recovery is not yet broadbased, inflation remains low, the demand for business credit is sluggish and external balance has not yet been restored. Taking these factors into consideration, the MPC agreed to maintain the repo rate at 5.00 per cent. The Bank will continue to carefully monitor and analyze international and domestic developments.

The next Monetary Policy Announcement is scheduled for December 27, 2019.”

This article was originally published on CentralBankNews.info on September 27, 2019. It is reproduced here with permission from the author.

Trinidad & Tobago raises rate first time since Dec. 2015

Trinidad and Tobago’s central bank raised its benchmark repo rate by 25 basis points to 5.0 percent, noting growth led by the energy sector, a pickup in private sector credit, still low inflation, and the implications of higher U.S. interest rates for the country’s external balance.

It is the first change in rates by the Central Bank of Trinidad and Tobago (CBTT) since December 2015 and continues a tightening cycle that began in September 2014. Since then, rates have been raised 225 basis points.

The expansion of Trinidad & Tobago’s energy sector is expected to spill over into non-energy activities and private sector credit growth rose in April by an annual 5.8 percent and a rebound in business credit suggest that private sector confidence could be strengthening, CBTT said.

Rising U.S. interest rates and stable rates in Trinidad and Tobago has pushed the yield differential between 3-month TT and U.S. bonds to minus 74 basis points and plans by the U.S. Federal Reserve to raise rates further would widen the interest rate differential if TT rates remain unchanged.

Inflation in Trinidad and Tobago eased to 0.8 percent in March from 0.9 percent in February.

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

“Global growth prospects continued to strengthen since the last meeting of the Monetary Policy Committee (MPC) in March 2018. The International Monetary Fund, in its April 2018 World Economic Outlook, raised projections for global growth in 2018 and 2019. However, the escalation of trade frictions among major economies could undermine the growth momentum moving forward. Meanwhile, some emerging market and developing economies (EMDE) are facing tighter financial conditions, accelerated capital outflows and adverse currency movements as the United States Federal Reserve (US Fed) normalizes its monetary policy. In June 2018 the Fed hiked its key policy rate for the second time in 2018.

On the domestic front growth in the first five months of 2018 has been concentrated in the energy sector. This is expected to spill over into non-energy activities, and there are already encouraging signs in distribution and a recovery of business credit, although construction remains sluggish. Meanwhile, headline inflation continued to be low, measuring 1.1 per cent (year-on-year) in April 2018, up from 0.8 per cent in the previous month.

Private sector credit growth maintained its positive momentum, rising in April by 5.8 per cent (year-on-year). Lending continued to be driven by loans for refinancing and debt consolidation, while some rebound in business credit suggests that private sector confidence could be strengthening. Further, the commercial banks’ weighted average lending rate has been falling since December 2017 and stood at 8.15 per cent at end-March 2018. Liquidity levels trended lower but remain comfortable.

Rising interest rates in the US combined with relatively stable rates domestically have pushed the TT-US yield differential on three-month Treasuries further below parity. The differential currently stands at -74 basis points. The US Fed has signaled that further hikes are planned in the context of the solid US growth outlook. Should this materialize it could further widen the negative TT-US interest rate differential if domestic interest rates remain unchanged.

The MPC in its deliberations noted the growth in early 2018 led by the energy sector, the pickup in private sector credit and the still low inflation. The Committee also took note of the implication of the strong upward trajectory of external interest rates, particularly in the US, for Trinidad and Tobago’s external balance. Taking all factors into consideration, the MPC took the decision to raise the repo rate by 25 basis points to 5.00 per cent. The Bank will continue to carefully monitor and analyze international and domestic developments.

The next Monetary Policy Announcement is scheduled for September 28, 2018.”

This article originally appeared on CentralBankNews.info and is reproduced here with permission from the author.