T&T's net official foreign reserves plunged by 14.7 per cent between the start of 2015 and the end of October, which is the lowest foreign reserve figure recorded by the Central Bank since November 2013, according to the latest data on the institution's website.
The country's net official foreign reserves at the end of October totalled US$9.64 billion, which is a decline of US$1.67 billion, since the start of 2015, a year in which the country's inflows of foreign exchange have declined because of the sharp fall in the prices of T&T's commodity exports.
The Central Bank also noted that the country's import cover at the end of October was 11 months, which was a drop from 12.8 months in January 2015.
In delivering the short-term outlook for the economy in 2016, Central Bank Governor, Jwala Rambarran, in his controversial December 4 speech, said: "The country's gross official reserves are projected to fall again as energy exports decline further, but will still continue to exceed conventional benchmarks of reserve adequacy (such as import cover and short-term debt coverage.
"The anticipated drop in reserves will translate into less foreign exchange available to Central Bank to support the market. Energy exports are expected to decline by around US$600 million, constraining foreign exchange inflows."
The Central Bank has attempted to engineer higher interest rates on loans in order to dampen the demand for foreign exchange, increasing the institution's main policy rate on eight consecutive occasions since it started to make its monetary policy less accommodative in September 2014.
In the speech, which was hosted by the Downtown Owners and Merchants Association at the Hyatt hotel, Rambarran said the timing and pace of increases in US interest rates have "tremendous implications" for foreign exchange demand and portfolio capital outflows, especially as the returns on US dollar assets remain more attractive than TT dollar assets.
Rambarran said: "Higher domestic interest rates are necessary to enhance returns on TT-dollar denominated assets, helping to curb portfolio capital movements out of T&T.
"Higher domestic interest rates are also necessary to discourage heavy consumer borrowing on imported consumer durables, which are a major source of foreign exchange demand."
In the presentation, the Governor also made the point that while inflows of foreign exchange had declined in the last three years, the demand for foreign exchange has remained steady.
He said energy exports declined from nearly US$11 billion in 2013 to an estimated US$7 billion in 2015, as declining commodity prices and production have slowed conversions of US dollars by energy companies, which are is the main source of inflows to the domestic foreign exchange market.
Rambarran said: "As a result total inflows of foreign exchange have been falling over the past three years.
"In 2013, the total supply of foreign exchange stood at US$5.8 billion. In 2014, it fell to US$5.5 billion. In the first eleven months of 2015, total inflows of foreign exchange fell by almost 20 per cent to US$4.4 billion.
"On the other hand, domestic appetite for foreign exchange remains robust. In 2013, the demand for foreign exchange stood at US$7 billion, about the same as in 2014. During the first eleven months of 2015, demand for foreign exchange amounted to US$6.8 billion."
The Central Bank intervened in the foreign exchange market last Monday, when it sold US$50 million to commercial banks.