The Central Bank of Trinidad and Tobago (CBTT) says preliminary estimates suggest that higher crude oil and petrochemical production spearheaded a return to positive growth in energy sector activity during the fourth quarter of 2021.
In its latest edition of the Monetary Policy Announcement, the CBTT said global economic uncertainty accelerated in the first quarter of 2022 in the wake of Russia’s invasion of Ukraine and its likely impact on already surging inflation across the world.
It said the 4.4 percent global growth for this year forecast by the International Monetary Fund (IMF) in January 2022 is likely to be downgraded based on current developments.
“One of the early impacts of the war is the jump in energy prices: crude oil prices (West Texas Intermediate measure) moved from an average of US$71.50 per barrel in December 2021 to an average of US$103 per barrel as of mid-March 2022 as sanctions on Russia disrupted supply.
Monetary policy responses have largely been in the direction of tightening”.
The CBTT said concern regarding higher domestic inflation, external price pressures on the energy front, and the impact of higher interest rates in advanced economies on potential capital flows and currency movements prompted several other Central Banks to also raise interest rates.
According to the CBTT, domestically, headline inflation stood at 3.8 percent (year-on-year) in January 2022 compared with 3.9 percent in October 2021.
It said food inflation eased to 6.6 percent from 7.6 percent in October, partly due to the zero-rating of Value Added Tax on additional food items from November 2021.
Core inflation, which excludes food items, remained steady at around three percent. Indications are, however, that imported inflation will continue to push up local prices of food and other items in the coming months.
“Preliminary estimates from the Central Bank’s Quarterly Index of Economic Activity (QIEA) suggest that higher crude oil and petrochemical production spearheaded a return to positive growth in energy sector activity during the fourth quarter of 2021. Although indicators of non-energy sector activity point to continued softness, the continued rollback of COVID-19 restrictions has boosted business operations, supported by bank financing.”
The CBTT said on a year-on-year basis to December 2021, business lending increased by 4.5 percent, compared to the 2.2 percent decline averaged over the first three quarters of that year.
The central bank said business lending was particularly strong in the construction and ‘other services’ sectors.
“The rise in credit to companies reflected some switch away from lending to consumers which slipped by 2.4 percent over the course of 2021. The creditworthiness of consumers may have suffered in a climate of sluggish employment conditions–the latest official labor statistics show an unemployment rate of 6.1 percent in the third quarter of 2020 that may have persisted into later quarters.”
The bank said financial system liquidity remains ample, with commercial banks’ excess reserves at the Central Bank averaging around six billion dollars (One Trinidad dollar=US$0.16 cents) $6 billion in early March 2022.
It said with interest rates domestically remaining relatively steady, the rise in global rates was reflected in a marked change in interest differentials.
“Specifically, the differential between Trinidad and Tobago and US 90-day treasury securities moved from +27 basis points in November 2021 to -20 basis points in March 2022.”
The CBTT said its Monetary Policy Committee (MPC) considered the increasing weight of external factors on current and short-term developments in Trinidad and Tobago, adding that ‘while higher energy prices will augment fiscal revenues, wider supply disruptions and higher prices of food commodities will add to imported inflation.
“The consensus view among international analysts regarding further interest rate adjustments in the US and elsewhere was also considered. At the same time, the Committee took account of the early signs of a domestic economic recovery facilitated by some expansion in credit, alongside still relatively low supply-driven inflation.
“Taking all factors into account, the MPC agreed to maintain the repo rate at 3.50 percent. The Central Bank will continue to carefully monitor and analyze international and domestic developments and prospects.”
CMC/
