PORT OF SPAIN, Trinidad– The Central Bank of Trinidad and Tobago (CBTT) Monday said signs of a relatively broad-based economic recovery became more evident during the fourth quarter of 2021 and that economic activity in the non-energy sector will continue to recover as the full effect of the reopening of the country takes root
In its Monetary Policy Report for May, the CBTT said recent high international energy prices had boosted the public finances and external accounts, creating a welcome space for financing further adjustment to the lingering effects of the pandemic.
“In the uncertain global setting, however, the situation can change rapidly, and care must therefore be taken to avoid considering this ‘windfall’ as permanent. Much needed structural reforms should also be accelerated to reduce bureaucracy and strengthen Trinidad and Tobago’s dynamism and attractiveness in tourism, financial and other service markets,” the CBTT warned.
It said domestically, higher crude oil and petrochemical production spearheaded a return to positive growth in energy sector activity during the fourth quarter of 2021 and that the rollback of the coronavirus (COVID-19) restrictions boosted business operations in some non-energy sectors while inflation, though rising, remains relatively contained.
The CBTT noted that export earnings are estimated to have more than doubled, rising by 101 percent to US$3,384.4 million over the final quarter of 2021, mainly reflecting higher energy exports. “Buoyed by climbing energy commodity prices, energy exports increased by US$1,723.7 million to US$2,839.1 million. In particular, crude oil prices averaged US$77.34 per barrel over the last three months of 2021, compared to US$42.56 per barrel in the comparative period of 2020.
“On a year-on-year basis, increases were recorded across all energy commodity exports – petrochemicals (199.5 percent), gas (140.8 percent), and petroleum crude and refined products (98.6 percent).
“Concurrently, non-energy exports registered a modest decrease of 4.1 percent to reach US$545.3 million. Notably, the lower non-energy export earnings corresponded to a decline in machinery and transport equipment exports. “
The CBTT said at the same time, total imports grew by 20.8 percent to US$1,700.6 million, in line with elevated international commodity prices and the reopening of particular sectors in the domestic economy through the implementation of the ‘TT Safe Zones’ initiative, which included restaurants, bars, casinos, and cinemas, among others.
It said the value of fuel imports grew by 85.5 percent to US$377.6 million, mainly owing to the upward trajectory in fuel prices. Non-energy senses were marginally higher at US$1,323.0 million as domestic demand recovered at a measured pace.
Trinidad and Tobago’s leading trading partner, the US, remained the primary source of imports, followed by China and the European Union – other traditional import markets,’ the CBTT noted.
The CBTT said that bank financing had supported private sector business activity, as evidenced by the pickup in business lending.
“Sluggish employment conditions may have adversely impacted consumer lending, which continued to decline. The Central Bank maintained an accommodative policy stance, in the context of relatively low, supply-side inflation impulses and nascent economic recovery.”
The CBTT said that production data point to an uptick in energy sector activity in the final months of 2021. The rollback of restrictions on the movement led to a gradual resumption of output in many non-energy sector businesses, including distribution, manufacturing, and construction. Supply-side factors are contributing to an increase in inflation.
The bank said core inflation, which excludes the food component, also rose with the lowering of the subsidy on domestic gasoline prices and the pass-through of increases in global costs of construction materials, such as cement, to domestic consumers.
The CBTT said financial system liquidity declined but remained adequate while interest rate differentials narrowed.
It said excess liquidity, measured by commercial banks’ reserves held at the Central Bank more than the required levels, declined from TT$7.7 billion (One TT dollar=US$0.16 cents) in November 2021 to TT$3.9 billion in April 2022.
“A rebound in business lending in October 2021, and a continued rise in real estate mortgage lending, contributed to the increase in consolidated system credit. However, consumer lending remains stymied. Credit conditions allowed for a small reduction in bank lending rates, from 7.04 percent to 6.93 percent on average between September 2021 and March 2022,” the CBTT said.
It said external monetary policy tightening has resulted in the TT/US short-term interest rate differential moving from 27 basis points to -42 basis points below from November 2021 to April 2022; the differentials on the longer-term end moved from 356 to 209 basis points.
In this context, the Central Bank of Trinidad and Tobago kept its monetary policy stance unchanged. The bank kept the short-term rate on its overnight collateralized financing to commercial banks, the Repo rate, at 3.50 percent following its Monetary Policy Committee (MPC) meetings in December 2021 and March 2022.
“The MPC focused on the early signs of domestic economic recovery, boosted by modest business credit expansion and relatively contained cost-push inflation. Nonetheless, the MPC took note of the rising importance of foreign inflationary influences and the fact that higher interest rates abroad could lead to some incentive to capital outflows,” the CBTT added.
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