Trinidad Central Bank Says Interest Rate Hike Needed To Protect Local Economy

PORT OF SPAIN, Trinidad, CMC – The Central Bank of Trinidad and Tobago (CBTT) says it will continue with an aggressive program to absorb excess liquidity so as to strengthen the impact higher interest rates are expected to have throughout the financial system.

The bank said it had also agreed to raise the “repo Rate” for a fourth consecutive time to 3.75 percent.

“Central Bank’s aggressive liquidity management program contributed to a significant reduction in commercial banks’ excess reserves in the first quarter 2015. Tighter liquidity levels prompted inter-bank activity in February 2015, the first time since 2013. The Bank will maintain this program to keep banking system liquidity at an appropriate level to support the monetary transmission of increases in the Repo rate,” the CBTT said in a statement.

It said that since it has noted the domestic economy appears to be approaching full capacity, and that this  situation remains unchanged, even though headline inflation slowed for the third consecutive month in February 2015, to just over six percent from six percent in November 2014.

“The slowdown in food inflation, as a result of higher food supply and favourable weather conditions, contributed to the deceleration in headline inflation. This easing in headline inflation may be short lived, as inflationary pressures are expected to pick up in the rest of 2015, due to a number of factors.”

The CBTT said growth of consumer credit remains robust, increasing by nearly 8.5 percent in January 2015, suggesting consumers are still willing to spend despite negative sentiment surrounding falling oil prices.

“Current and expected settlement of wage negotiations for teachers, civil servants and other public sector workers with considerably large retroactive payments and salary increments will boost consumer spending and further stoke inflationary pressures.”

But the bank said that the expansionary fiscal stimulus remains on track, and that Central Government’s spending on its capital program was higher by seven percent, in the first four months of the financial year 2014/2015, when compared to the corresponding period one year ago.

“Over the final quarter of 2014, economic growth was buoyed by further positive momentum in the non-energy sector, even as activity in the energy sector was marred by maintenance work. Discussions with upstream energy producers suggest there was no carry-over of maintenance-related activity into early 2015, and the start-up of BGTT’s Starfish well is expected to provide a fillip to upstream gas production in 2015.”

The CBTT said that both natural gas and crude oil output were higher by almost two percent and 12.5 percent, respectively, in January 2015. The near-term outlook for the non-energy sector is for continued steady performance, albeit at a slower pace than in 2014.