PORT OF SPAIN, Trinidad, The Central Bank of Trinidad and Tobago (CBTT) says the recovery of economic activity is gradually taking shape even as it acknowledged that the global economy was faced with multiple headwinds in 2022.
In its December edition of its “Monetary Policy Announcement, “issued on the last working day of the year, the CBTT said the spillover effects of the Russia-Ukraine war, a sharp slowdown in China, and widespread inflationary pressures dampened global growth.
It said supply shocks caused rapid increases in food and fuel prices resulting in multi-decade high inflation in many countries. In response, many central banks tightened monetary policy. The CBTT said while policy actions have cooled price pressures in some areas, but at the expense of growth and volatility in capital markets.
In the case of Trinidad and Tobago, the Central Bank said that the recovery of economic activity is gradually taking shape and that the startup of several upstream projects will provide a fillip to energy production.
“Strengthening business activity and consumer demand also augur well for the non-energy sector. Nonetheless, the revival of the labor market remains sluggish, with the unemployment rate up from 4.5 percent in the second quarter to 5.4 percent in the third quarter of 2022.”
The CBTT said that the latest available data from the Central Statistical Office (CSO) put headline inflation at 6.2 percent (year-on-year) in September 2022, slightly lower than the 6.3 percent in the previous month.
It said food inflation was registered at 11.6 percent, while core inflation, excluding food items, measured 4.8 percent in September.
The CBTT said external influences continued to dominate the trajectory of domestic inflation in the first nine months of 2022, adding “a combination of imported commodity prices, flooding, and the impact of the reduction in the subsidy on local fuel prices is expected to lead to further price rises during the final quarter of the year.”
The Central Bank said there is good evidence that financing for business expansion is improving. It said financial system credit to businesses rose by 9.6 percent in October 2022 on a year-on-year basis. Banking system liquidity is also relatively high in mid-December ($7.1 billion in excess reserves at the Central Bank).
“Some of this liquidity surge may be temporary as banks prepare to cater for end-of-year tax commitments by their customers. In the context of Fed monetary tightening, the TT/US differential on three-month treasuries reached -387 basis points in November 2022 while the differential on ten-year treasuries was +148 basis points.”
The CBTT said that its Monetary Policy Committee (MPC) assessed the evolving local and international landscape, recognizing that tremendous uncertainty characterized expected geopolitical developments into 2023 while financial markets remained unsettled.
“Domestically, business operations were poised to rebound further, supported by bank credit and potentially some of the additional fiscal space afforded to the Government from higher energy prices.” The MPC, however, noted with concern the rising path of domestic inflation, albeit dominated in 2022 by external or weather-related shocks as well as the fuel subsidy reduction.
“In balancing all considerations, the Committee decided to maintain the repo rate (the rate at which commercial banks borrow money by selling their securities to the Central Bank) at its current level of 3.50 percent. At the same time, the MPC considered that the Bank should be prepared to further employ other monetary tools, including more active open market operations, in addressing the inflationary situation flexibly.”
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