The Cen­tral Bank yes­ter­day de­cid­ed to keep its re­po rate at 4.75 per cent, cit­ing a sharp de­cline in en­er­gy sec­tor out­put, a "very sub­dued" non-en­er­gy sec­tor along with mod­er­ate cred­it growth and low in­fla­tion.

In a state­ment is­sued yes­ter­day, the Cen­tral Bank said its rate-set­ting com­mit­tee, the Mon­e­tary Pol­i­cy Com­mit­tee (MPC) weighed in­ter­na­tion­al de­vel­op­ments against a do­mes­tic eco­nom­ic en­vi­ron­ment char­ac­terised by con­tin­ued slug­gish­ness in com­ing to its de­ci­sion.

Cit­ing the in­ter­na­tion­al de­vel­op­ments, the MPC said in­ter­est rates have start­ed on an up­ward tra­jec­to­ry, with the US Fed­er­al Re­serve in­creas­ing in­ter­est rates in De­cem­ber 2016, for the first time since De­cem­ber 2015.

The Cen­tral Bank said that with the US econ­o­my near full em­ploy­ment and in­fla­tion close to the Fed's tar­get of 2 per cent, fi­nan­cial mar­kets are fac­tor­ing in fur­ther rate in­creas­es over the course of this year.

"In this con­text, the dif­fer­en­tial be­tween T&T and US short-term (three-month) Trea­sury in­stru­ments nar­rowed by 27 ba­sis points over the past six months, from 94 ba­sis points at the end of June 2016 to 67 ba­sis points at mid-Jan­u­ary 2017," ac­cord­ing to the mon­e­tary pol­i­cy an­nounce­ment.

The state­ment not­ed that at the same time that in­ter­est rates were trend­ing up, there was a re­vival of in­ter­na­tion­al en­er­gy prices, with the price of West Texas In­ter­me­di­ate crude pe­tro­le­um av­er­ag­ing US$52.40 per bar­rel over the first three weeks in Jan­u­ary 2017 com­pared to US$39.40 per bar­rel in the first half of 2016.

The Cen­tral Bank al­so not­ed with re­spect to glob­al trade: "While the firm­ing of the US econ­o­my would pull up de­mand, there are signs that pol­i­cy ad­just­ments in the US could lead to a weak­en­ing of in­ter­na­tion­al trade flows over the short and pos­si­bly medi­um term." The ref­er­ence to pol­i­cy ad­just­ments in the US is be­lieved to en­com­pass the elec­tion of Don­ald Trump as US pres­i­dent and the per­cep­tion that his poli­cies may not be in favour of pro­mot­ing glob­al trade.

Do­mes­ti­cal­ly, the Cen­tral Bank said that avail­able da­ta showed that en­er­gy pro­duc­tion de­clined marked­ly in 2016, due to a com­bi­na­tion of fac­tors in­clud­ing mat­u­ra­tion of oil and gas fields and main­te­nance work which re­duced gas feed­stock to the down­stream in­dus­tries.

The Cen­tral Bank es­ti­mat­ed that for the pe­ri­od Oc­to­ber and No­vem­ber last year that oil pro­duc­tion was 7.5 per cent low­er than in the cor­re­spond­ing months of 2015, while nat­ur­al gas out­put was 10.5 per cent low­er.

It said, how­ev­er, that the prospects for 2017 ap­pear brighter and "both oil and gas out­put are ex­pect­ed to re­cov­er some­what as new fields are put in­to op­er­a­tion and there are few­er stop­pages for main­te­nance."

Mean­while, lat­est avail­able da­ta on re­tail sales, ce­ment sales and pro­duc­tion of mined ag­gre­gates, such as grav­el and sand, sug­gest that the dis­tri­b­u­tion and con­struc­tion sec­tors re­main very sub­dued.

In­fla­tion con­tin­ues to be low. On a year-on-year ba­sis, head­line in­fla­tion in No­vem­ber 2016 was 2.9 per cent, with core in­fla­tion at 2.1 per cent. On av­er­age, in­fla­tion in 2016 (Jan­u­ary to No­vem­ber) mea­sured 3.1 per cent, com­pared with 4.7 per cent for all of 2015.

Liq­uid­i­ty in the fi­nan­cial sys­tem has mod­er­at­ed, with com­mer­cial bank ex­cess re­serves at the Cen­tral Bank av­er­ag­ing just over $2 bil­lion over the first half of Jan­u­ary 2017 com­pared with $3.5 bil­lion in the fi­nal quar­ter of 2016. Cred­it growth has al­so been mod­er­ate–cred­it by the con­sol­i­dat­ed fi­nan­cial sys­tem to the pri­vate sec­tor grew by 3.8 per cent (year-on-year) in No­vem­ber 2016. This was slight­ly above the 3 per cent record­ed in the pre­vi­ous month.

The Cen­tral Bank al­so not­ed that con­di­tions in the for­eign ex­change mar­ket re­mained tight in ear­ly Jan­u­ary 2017, with some re­duc­tion in trade de­mand from the end-of-year highs nor­mal­ly ex­pe­ri­enced in No­vem­ber and De­cem­ber.

"In bal­anc­ing the con­sid­er­a­tions of the in­ter­na­tion­al fi­nan­cial dy­nam­ics and do­mes­tic eco­nom­ic per­for­mance and prospects ev­i­dent in ear­ly 2017, the MPC de­cid­ed to re­tain the re­po rate at 4.75 per cent," said the Cen­tral Bank.

The next Mon­e­tary Pol­i­cy An­nounce­ment is sched­uled for March 31, 2017.