PORT OF SPAIN, Trinidad, CMC – The Central Bank of Trinidad and Tobago (CBTT) says the nonenergy sector is anticipated to boost economic activity and that business activity and consumer demand will support the expansion in the nonenergy industry in the short to medium term.
“Specifically, the manufacturing sector is anticipated to ramp up as efforts to penetrate additional markets ensue. On the other hand, output from the energy sector is expected to remain lackluster, due in part to constrained gas supplies, despite the pending start-up of several projects,” the CBTT said in its Monetary Policy Report May 2024, released here.
It said that a boost in employment is expected across a number of nonenergy industries, employment gains are anticipated in the construction and manufacturing subsectors, and inflation is likely to remain low in 2024.
“However, external and domestic factors such as ongoing geopolitical tensions, unfavorable weather conditions, higher cement prices, and possibly higher electricity tariffs can place upward pressure on prices,” the CBTT said.
It said that Treasury rates may experience some upward pressures owing to frequent capital market activity conducted by the Central Government.
“The trajectory of external benchmark rates was expected to stabilize since the Fed signaled that rates would remain near current levels. However, US interest rates are anticipated to decline by late 2024 as inflation reverts toward its target. On the other hand, domestic interest rates are expected to increase. This suggests there may be some improvement in TT-US differentials across all tenors.”
The CBTT said that with inflation broadly contained, monetary policy will likely have to consider managing the volatility in the banking system’s liquidity and mitigating external imbalances.
It said while short-term capital market rates have increased in recent months due to the tightening effect of government borrowing on liquidity conditions, commercial bank lending rates have stayed the same due to increased competition among banks to expand their loan portfolios.
Meanwhile, the report says that despite prior evidence of a sustained economic recovery, the latest data published by the Central Statistics Office (CSO) points to a slip in economic activity in the third quarter of 2023.
According to CBTT’s Monetary Policy Report May 2024, released here, the nonenergy sector remained buoyant while the energy sector continued to experience challenges.
“As a result, real Gross Domestic Product (GDP) growth was flat over the first three quarters of 2023. Indicators monitored by the Central Bank suggest that the nonenergy sector drove economic activity over the fourth quarter of 2023 and the first quarter of 2024,” the CBTT said.
It said the strong performance of trade and repairs, excluding the energy sector, continued to shore up activity over the period. Additionally, domestic prices remained contained on the inflation front in May 2024.
Meanwhile, the CBTT said official labor market data from the Central Statistical Office (CSO) suggests improved labor market conditions in the fourth quarter of 2023.
“Thus far in 2024, the monetary policy stance has remained unchanged,” the CBTT said, noting that the Repo rate was maintained at 3.50 percent, unchanged since March 2020. The CBTT said favorable financial conditions, characterized by still ample liquidity, tempered commercial lending rates.
It said that though commercial banks’ excess reserves slipped to TT$4.3 billion (One TT dollar = US$0.16 cents) in May 2024, liquidity remained sufficient to support the ongoing expansion in private sector credit.
In April 2024, private sector credit expanded by 6.7 percent, buttressed by consumer and business lending, while real estate mortgage lending slowed.
The CBTT said that government domestic financing activity contributed to an increase in short-term interest rates.
“In particular, the Trinidad and Tobago (TT) 91-day treasury rate increased by 35 basis points from November 2023 to May 2024 to reach 1.40 percent. Shorter-term US interest rates edged up, but the momentum has slowed considerably since the Fed’s pause in interest rate hikes.
“As a result, the TT-US 91-day differential improved to -406 basis points in May 2024 compared with -440 basis points in November 2023.”
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