GEISHA KOW­LESSAR-ALON­ZO

Cen­tral Bank Gov­er­nor Dr Alvin Hi­laire says the coun­try has had a mi­cro­eco­nom­ic im­bal­ance for the last few years and what is need­ed is an over­all eco­nom­ic so­lu­tion.

He was re­spond­ing to whether or not the T&T cur­ren­cy should be de­val­ued.

“It’s no se­cret there has been an im­bal­ance in the for­eign ex­change mar­ket. It has been due in part to a col­lapse in en­er­gy prices, we had some pro­duc­tion dif­fi­cul­ties, the COVID didn’t help and this is where we are,” Hi­laire ex­plained.

Dur­ing the re­cent­ly held Spot­light on The Econ­o­my Fi­nance Min­is­ter Colm Im­bert said there were no plans at this time to de­val­ue the T&T cur­ren­cy.

Hi­laire, who was speak­ing dur­ing the bank’s cur­rent fi­nan­cial sta­bil­i­ty is­sues held vir­tu­al­ly yes­ter­day, said there must be “an ap­pro­pri­ate com­bi­na­tion” of fis­cal, mon­e­tary and struc­tur­al pol­i­cy.

“Par­tic­u­lar­ly struc­tur­al, mean­ing get­ting the way of do­ing busi­ness more ag­ile, get­ting flex­i­bil­i­ty in dif­fer­ent mar­kets to be able to take ad­van­tage of dif­fer­ent sce­nar­ios,” Hi­laire said.

He cit­ed a pre­COVID study done by the IMF a cou­ple of years ago ex­am­ined the ex­pe­ri­ences of coun­tries in Latin Amer­i­ca and the Caribbean re­gard­ing de­pre­ci­a­tion or sud­den de­val­u­a­tion.

“For coun­tries that didn’t have flex­i­bil­i­ty in their op­er­a­tions it came be­cause of im­port com­pres­sion so there was a huge com­pres­sion of im­ports as op­posed to ex­ports,” Hi­laire said.

Con­trast this to the case of Asia, he added, not­ing where there was a small de­pre­ci­a­tion and peo­ple be­gan to pro­duce more be­cause their op­er­a­tions were quite flex­i­ble to take in­to ac­count what maybe a price change.

Hi­laire said it is in this con­text that T&T can look at the dif­fer­ent as­pects in which a de­pre­ci­a­tion may work.

“Hav­ing said that it is not so im­por­tant the ex­change rate regime but the com­ple­men­tary poli­cies.”

He said if he were to look at two ex­tremes, one a fixed ex­change rate and “so fixed as in the case of a cur­ren­cy union like the Eu­ro or the East­ern Caribbean” and two, where there is com­plete flex­i­bil­i­ty.

“Both sit­u­a­tions and the hy­brids in be­tween could work but it all de­pends on a num­ber of things-flex­i­bil­i­ty to deal with sit­u­a­tions as well as the cred­i­bil­i­ty and what it means as well as the com­ple­men­tary poli­cies.

“If you don’t have that then any change in­clud­ing a de­pre­ci­a­tion would have a tem­po­rary and per­haps ad­verse sce­nario.”

He al­so not­ed that while the coun­try’s fi­nan­cial sys­tem re­mains sound, well-cap­i­talised and healthy there are, how­ev­er, some vul­ner­a­bil­i­ties in­clud­ing ris­ing house­hold debt, sov­er­eign ex­po­sure, and an un­cer­tain macro­eco­nom­ic out­look.

Hi­laire said fi­nan­cial sta­bil­i­ty in­di­ca­tors show that in gen­er­al banks were well cap­i­talised, prof­itable, have good liq­uid­i­ty and the strong cred­it rat­ings.

The per­for­mance of the in­sur­ance sec­tor was al­so com­mend­ed.

At the same time, Hi­lar­ie not­ed, cred­it growth was slug­gish and had not yet re­spond­ed to the re­cent sig­nif­i­cant mon­e­tary pol­i­cy ac­tions in March this year.

He not­ed, the weak cred­it re­sponse is like­ly due to both de­mand (in­di­vid­u­als and busi­ness­es re­luc­tant to bor­row more) and sup­ply (banks’ con­cern re­gard­ing main­tain­ing cred­it qual­i­ty) fac­tors.