PORT OF SPAIN, Trinidad, CMC – The Central Bank of Trinidad and Tobago (CBTT) says several indicators suggest economic activity picked up in the second quarter of this year and that activity in the non-energy sector is expected to benefit from increased business activity alongside the ongoing resurgence in consumer demand.
In its Monetary Report for November, the CBTT said that domestically, activity was driven by an improvement in the non-energy sector, which countered a decline in output from the energy sector.
“This may have also contributed to improved labor market conditions as the unemployment rate fell and labor force participation improved. Employment gains were noted in the construction, including electricity and water; wholesale, retail, restaurants and hotels; and community, social and personal services sectors.”
The Central Bank said that headline inflation eased to 1.3 percent in October 2023 due to a deceleration in food and core inflation.
It said the financial system liquidity decreased from May to November 2023.
Fiscal operations, usually the primary driver of excess liquidity, resulted in net injections of TT$2.6 billion (One TT dollar=US$ 0.16 cents) over the review period, compared to TT$7.8 billion one year earlier.
Central Bank Open Market Operations (OMOs) resulted in two billion dollars in net injections from May to November 2023. Simultaneously, the Central Bank’s foreign exchange sales to authorized dealers indirectly removed TT$5.6 billion from the system.
“Nonetheless, excess liquidity remained ample, underpinning expansions in private sector credit. As of September 2023, consolidated system credit remained favorable, driven by robust consumer, real estate mortgage, and business lending growth. Meanwhile, conditions in the foreign exchange market remained relatively tight,” the CBTT added.
It said that the Central Bank kept its monetary policy stance unchanged. During its June and September 2023 Monetary Policy Committee (MPC) meetings, the Central Bank kept the short-term rate on its overnight collateralized financing to commercial banks, the Repo rate,
at 3.50 percent.
The MPC took account of the economic recovery alongside the deceleration in domestic inflation in calibrating its stance. At the same time, the Committee noted that the negative short-term interest differential between Trinidad and Tobago and the United States had widened.
“In this regard, particular attention needed to be paid to the interest rate trajectory of the US Federal Reserve while balancing the implications of higher domestic rates on economic growth.”
The CBTT said that the international economic outlook continues to be clouded by the impacts of restrictive monetary policy to arrest inflationary pressures and the resultant highest borrowing costs in decades. In its October 2023 World Economic Outlook (WEO), the IMF projects a slowdown in global growth to three percent in 2023, following a more significant expansion of 3.5 percent in 2022.
The Central Bank said domestic inflation is expected to remain low in the final months of 2023, with a possible uptick in 2024, based on how global prices evolve and the timing and magnitude of utility rate changes.
It said some demand pressures could also materialize depending on the extent of wage settlements and payments of salary arrears.
“Activity in the non-energy sector is expected to benefit from increased business activity alongside the ongoing resurgence in consumer demand. Energy sector performance hinges on the commencement of upstream projects to bolster supply.
“Production from Touchstone’s Cascadura and EOG’s Osprey prospects, expected before year’s end, can support output in the second half of 2023,” the CBTT said.
The Central Bank said that monetary policy will continue to focus on inflation while considering domestic growth prospects and interest differentials with the rest of the world.
“At present, inflation is meager, there are signs that the economy’s steady recovery continues, credit is recovering at a good pace, and short-term interest differentials with the US are still negative.
“All of these factors could change in light of, among other things, international supply side uncertainties affecting global prices, the outcome of energy production plans, and the path of interest rates in the US and elsewhere,” the CBTt added.
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