PORT OF SPAIN, Trinidad – The Central Bank of Trinidad and Tobago (CBTT) says the high energy prices that have persisted despite the gradual pick up in supplies from the OPEC and other suppliers, continue to benefit the country.
Photo credit: Roberto CodalloBut the CBTT in its latest Monetary Policy Announcement, warned that while the future is uncertain, “such price developments have benefitted Trinidad and Tobago’s fiscal and external accounts to date,” acknowledging also that the outlook for the global economy is less upbeat than at the beginning of this year.
“Indications that the conflict between Russia and Ukraine will be protracted point to longer supply disruptions in energy, grain and fertilizer markets. The inflationary impact has spread worldwide, compounded in some countries by demand pressures related to earlier significant monetary and fiscal policy expansions to deal with the COVID-19 pandemic.”
The CBTT said that while a number of central banks have reversed course and raised interest rates; recent volatility in global stock markets has been exacerbated by concerns that sharply higher interest rates could plunge some economies, including the United States, into recession.
It said that crude oil prices (West Texas Intermediate) moved from an average of US$108.49 per barrel in March 2022 to US$120.93 per barrel at mid-June and that natural gas prices (Henry Hub) have been equally robust, rising from US$4.88 per mmbtu to US$8.96 per mmbtu over the same period.
In the case of Trinidad and Tobago, energy output for the first quarter of this year has been mixed. On a year-on-year basis, crude oil rose by 2.2 percent while natural gas and petrochemicals declined by 5.6 percent and 6.2 percent, respectively.
“Available non-energy sector indicators signal a gradual recovery in 2022, in the context of the lifting of all restrictions on business activity compared to most of 2021,” the CBTT said, noting that with respect to the labor market response, the latest Central Statistical Office data show that the unemployment rate may have started to trend down earlier, reaching 5.4 percent in the third quarter of 2021, from the 7.2 percent high at the end of 2020.
But it said at the same time, this rate was higher than the 4.7 percent published for the second quarter of last year and may incorporate some decline in the number of people in the labor market as opposed to just new jobs.
Headline inflation rose to 5.1 percent in April 2022 compared with 4.1 percent a month earlier. Food inflation picked up to 8.7 percent from 7.9 percent, reflecting higher prices for rice, margarine, edible oils and meat. Core inflation, which excludes food items, rose to 4.1 percent from 3.2 percent in the previous month, partly due to the adjustment to domestic fuel prices.
The Central Bank said prices of building materials have also shown relatively significant increases according to available data, especially on imported components.
“Business lending continued to accelerate, expanding by 7.4 percent in March 2022, and driven by increased loans to the construction (17.5 percent), manufacturing (12.3 percent) and ‘other services’ (10.9 percent) sectors.
“Meanwhile, the fall in consumer lending appeared to have bottomed out in March 2022, signalling that a return of consumer demand to pre-pandemic levels may be on the horizon. In particular, credit card loan growth turned positive (0.8 percent) in March after falling off since the onset of the pandemic.”
The CBTT said that financial system liquidity remains ample, with commercial banks’ excess reserves at the Central Bank averaging TT$5.3 billion (One TT dollar=US$0.16 cents) in early June 2022.
It said that the Monetary Policy Committee (MPC) assessed the evolving global financial environment alongside the specific developments in Trinidad and Tobago and the short to medium term outlook. The MPC noted that higher international interest rates were already being reflected in interest differentials and that US three -month treasuries were about 73 basis points higher than equivalent domestic instruments in May 2022.
“International inflation had also spilled over to Trinidad and Tobago and was expected to continue its upward path. At the same time, the impulses to domestic prices were currently externally generated and the statistics on credit and real sector activity pointed to a recovery that was underway but yet to be firmly established.
“Taking all factors into account, the MPC agreed to maintain the repo rate at 3.50 percent,” the CBTT said, adding that it will continue to carefully monitor and analyse international and domestic developments and prospects.
