TRINIDAD-Central Bank says the outlook for this year “looks favorable.”

PORT OF SPAIN, Trinidad, CMC – The Central Bank of Trinidad and Tobago (CBTT) Friday said the outlook for 2023 looks favorable, barring major external shocks.

In its Monetary Police Announcement” for March, the CBTT said domestic inflation moderated in January. The figures released by the Central Statistical Office (CSO) showed that headline inflation decelerated to 8.3 percent in January 2023 year-on-year compared with 8.7 percent a month earlier.

It said food inflation remained unchanged at 17.3 percent, with slower price increases for fish, bread, and cereals. Core inflation, which excludes food items, slowed to 6.1 percent from 6.7 percent as price increases eased for housing, communication, and furnishings.

The CBTT said the rate of price increases for building materials also decelerated.

“Regarding economic activity in Trinidad and Tobago, the latest estimates put growth in 2022 at around 2.5 percent. This reflected a relatively good performance in the energy sector alongside a gradual revival in non-energy production,” the CBTT said, adding that “there is some early evidence of improving labor market conditions based on observed increases in labor force participation in the third quarter of 2022 and the decline in the number of persons retrenched during the second half of 2022.

“The outlook for 2023 looks favorable, barring major external shocks. Concerning financial indicators, liquidity remains ample and credit buoyant, while interest differentials widened,” the Central Bank said.

It said commercial banks’ excess reserves at the Central Bank fell by around TT$400 million (One TT dollar=US$0.16 cents), from TT$6.7 billion at the end of December 2022 to TT$6.2 billion on March 28 this year.

The CBTT said more extensive open market operations contributed to the decline, including net treasury bill sales of around one billion dollars and US$300 million in foreign exchange interventions by the Central Bank.

Financial system lending to businesses expanded by 9.8 percent in December 2022. Credit growth to the construction and manufacturing sectors was recorded at 18 and 11 percent, respectively, and “were particularly robust, while consumer credit gathered momentum.”

The CBTT said the differential between interest rates on three-month treasures in Trinidad and Tobago and the United States moved to minus 429 basis points in February 2023.

“This compares to minus 392 basis points at the end of December 2022 in the context of US Fed tightening. There is evidence of a slight upward movement in domestic interest rates in recent months; the rise in average rates on loans exceeded those on deposits resulting in an expansion in the loan/deposit spread by five basis points to 6.36 percent.”

The CBTT said that the Monetary Policy Committee (MPC) noted the recent banking problems and the potential repercussions on global financial stability in reviewing external developments.

“While domestic inflation had shown signs of slowing down, the MPC acknowledged that unanticipated external impulses and second-round effects of the adjustment to local fuel prices could temper further reductions in inflation in the short run.

“The current buoyancy in credit was welcome in fostering growth that was still at an early stage but needed to be closely monitored given the implications for demand pressures and the quality of bank assets,” the CBTT said, adding that the MPC also noted the impact that the Bank’s recent open market operations had been having on financial system liquidity. “Considering all these factors, the MPC agreed to maintain the repo rate at 3.50 percent.”