The Mon­e­tary Pol­i­cy Com­mit­tee (MPC) of the Cen­tral Bank of Trinidad and To­ba­go has an­nounced a re­duc­tion in the Re­po rate as it tries to sup­port the econ­o­my hit by the free-fall of en­er­gy prices and the loss of pro­duc­tion ex­pect­ed as the im­pact of mea­sures to com­bat the COVID-19 is felt in T&T.

The re­duc­tion in the Re­po rate by 150 ba­sis points will make it cheap­er for banks to bor­row and cold as­sist it in re­duc­ing in­ter­est rates to its cus­tomers.

Ac­cord­ing to a re­lease from the CBTT: " The MPC de­cid­ed to re­duce the re­po rate by 150 ba­sis points to 3.5 per cent and to low­er the pri­ma­ry re­serve re­quire­ment on com­mer­cial bank de­posits by 3 per cent to 14 per cent. The MPC con­sid­ered that such ac­tions would am­pli­fy sys­tem liq­uid­i­ty in the short run—ap­prox­i­mate­ly $2.6 bil­lion in the case of the low­er re­serve re­quire­ment—and al­low for a re­duc­tion in in­ter­est rate spreads by low­er­ing com­mer­cial banks’ cost of funds."

The Bank said it held a spe­cial sit­ting on March 17, 2020 as it looked at the glob­al­ly im­pact of the Covid-19 virus on lives and economies.

Ac­cord­ing to the Bank the coro­n­avirus out­break has al­ready up­turned fi­nan­cial mar­kets, cre­at­ed sup­ply chain dis­rup­tions, dri­ven en­er­gy prices to very low lev­els and led to the in­creas­ing self-iso­la­tion of sev­er­al coun­tries. A com­pound­ing fac­tor the CBTT not­ed is the tremen­dous un­cer­tain­ty re­gard­ing the path of fu­ture in­fec­tions, the tim­ing of the turn­ing point, and the ex­tent of the rip­ple ef­fects.

"In re­sponse, many cen­tral banks have al­ready low­ered their pol­i­cy rates, ex­pand­ed quan­ti­ta­tive eas­ing, and added new fi­nanc­ing pro­grams in an ef­fort to stim­u­late eco­nom­ic ac­tiv­i­ty at a time when many busi­ness­es have been forced to cease op­er­a­tions." the CBTT press re­lease read.

It not­ed that one sig­nif­i­cant fall­out of the pan­dem­ic has been the dra­mat­ic drop in en­er­gy prices as the de­mand for fu­el de­clined on ac­count of the slow­down of in­dus­tri­al pro­duc­tion and sharp re­duc­tion in air­line car­riage. This cou­pled with dis­cord among the Or­ga­ni­za­tion of the Pe­tro­le­um Ex­port­ing Coun­tries (OPEC) and non-OPEC coun­tries has re­sult­ed in the West Texas In­ter­me­di­ate (WTI) oil price hov­er­ing around the US$30 price point in March 2020 com­pared to US$50-US$60 ear­li­er in the year.

It said as an en­er­gy ex­porter, Trinidad and To­ba­go is feel­ing the ef­fects of both shocks.

The re­port read: "The im­pacts on the fis­cal and ex­ter­nal bal­ances will like­ly spill over to the growth out­look de­pend­ing on the du­ra­tion of the events. At the same time, in­fla­tion re­mains quite low, at 0.4 per cent (year-onyear) in Jan­u­ary 2020. While over­all pri­vate sec­tor cred­it from the fi­nan­cial sys­tem grew by 4.6 per cent in Jan­u­ary, the busi­ness lend­ing cat­e­go­ry con­tin­ued to slip. Ex­cess liq­uid­i­ty in the bank­ing sys­tem in mid-March was $4.8 bil­lion. Falling in­ter­est rates in the US mar­ket re­sult­ed in an im­prove­ment of the TT-US dif­fer­en­tial, with the dif­fer­en­tial turn­ing pos­i­tive in March 2020 at all tenors".

It end­ed that tak­ing these fac­tors in­to ac­count, the MPC al­so con­sid­ered that the un­prece­dent­ed na­ture and mag­ni­tude of the pan­dem­ic, ex­ac­er­bat­ed by the en­er­gy price drop, high­light­ed the un­der­ly­ing need for co­or­di­nat­ed mon­e­tary, fis­cal and struc­tur­al poli­cies.