The Cen­tral Bank yes­ter­day agreed to keep the re­po rate at 3.50 per cent, not­ing that the key con­sid­er­a­tions in tak­ing the de­ci­sion were the com­bi­na­tion of low in­fla­tion, a mea­sured eco­nom­ic re­vival fo­cused on non-en­er­gy sec­tors, and the prospects for a fur­ther nar­row­ing of the neg­a­tive short-term TT/US in­ter­est dif­fer­en­tial.

In its quar­ter­ly mon­e­tary pol­i­cy an­nounce­ment, the Cen­tral Bank not­ed that the growth in fi­nan­cial sys­tem cred­it to the pri­vate sec­tor has been rel­a­tive­ly strong in re­cent months, with “con­sumer cred­it” grow­ing at a dou­ble dig­it pace, which needs to be close­ly mon­i­tored in com­ing months.

It point­ed out, “Con­sumer lend­ing in par­tic­u­lar grew by over 10 per cent (year-on-year) in the months of March to June 2024, with a con­cen­tra­tion on loans for mo­tor ve­hi­cles, re­fi­nanc­ing and debt con­sol­i­da­tion. Mean­while, busi­ness and re­al es­tate mort­gage lend­ing rose by a month­ly av­er­age of 9.2 per cent and 5.1 per cent, re­spec­tive­ly over the March to June 2024 pe­ri­od.”

De­spite the dou­ble-dig­it growth most re­cent­ly, the Bank point­ed out that in­fla­tion in T&T re­mains low.

“Re­cent da­ta from the Cen­tral Sta­tis­ti­cal Of­fice show that head­line in­fla­tion slid to 0.4 per cent (year-on-year) in Au­gust 2024 from 0.7 per cent in June 2024. Food in­fla­tion eased in Au­gust, slip­ping to 1.5 per cent from 2.3 per cent in June. Core in­fla­tion, which ex­cludes the in­flu­ence of food prices, de­creased slight­ly to 0.1 per cent in Au­gust from 0.2 per cent in June,” ac­cord­ing to the Cen­tral Bank’s mon­e­tary pol­i­cy com­mit­tee. The com­mit­tee is chaired by Cen­tral Bank Gov­er­nor Dr Alvin Hi­laire.

It re­ferred to its de­ci­sion to re­duce the re­serve re­quire­ment from 14 to 10 per cent in Ju­ly, not­ing that the do­mes­tic bank­ing sys­tem liq­uid­i­ty (as mea­sured by com­mer­cial banks ex­cess re­serves at the Cen­tral Bank) rose by about $3 bil­lion.

“Liq­uid­i­ty then fluc­tu­at­ed as banks ad­just­ed their port­fo­lios in the con­text of Cen­tral Bank open mar­ket op­er­a­tions and pub­lic sec­tor bor­row­ing. More re­cent­ly, ex­cess re­serves reached a dai­ly av­er­age of $6.3 bil­lion in mid-Sep­tem­ber 2024,” said the mon­e­tary pol­i­cy com­mit­tee of the Cen­tral Bank.

The Cen­tral Bank said there has been a con­tin­ued rise in do­mes­tic in­ter­est rates on trea­sury bills as a re­sult of the sus­tained pub­lic sec­tor fi­nanc­ing re­quire­ments. The bank said the in­crease in the rates of lo­cal trea­sury bills, along­side the de­cline in ex­ter­nal in­ter­est rates, led to a nar­row­ing of the (neg­a­tive) TT/US short-term in­ter­est dif­fer­en­tials.

“This mea­sure of rel­a­tive rates on three-month trea­suries moved from -349 ba­sis points to -271 ba­sis points be­tween June and mid-Sep­tem­ber 2024,” said the Cen­tral Bank.

Ex­plain­ing the nar­row­ing of the (neg­a­tive) TT/US short-term in­ter­est dif­fer­en­tials, the bank said in Sep­tem­ber 2024, the Unit­ed States Fed­er­al Re­serve low­ered its tar­get range for the fed­er­al funds rate by 50 ba­sis points to 4.75 to 5.0 per cent. That was its first rate cut since March 2020.

Re­fer­ring to its Ju­ly 2024 re­duc­tion in the re­serve re­quire­ment from 14 to 10 per cent, the Cen­tral Bank said that im­me­di­ate­ly fol­low­ing the de­ci­sion, bank­ing sys­tem liq­uid­i­ty (as mea­sured by com­mer­cial banks’ ex­cess re­serves at the cen­tral bank) rose by about $3 bil­lion. This be­gan to fluc­tu­ate as banks ad­just­ed port­fo­lios.  

The re­port not­ed more re­cent­ly, ex­cess re­serves reached a dai­ly av­er­age of $6.3 bil­lion in mid-Sep­tem­ber 2024.