The Central Bank says the supply-side stimulus to both food and core inflation in T&T is anticipated to persist to the end of 2022.
According to its latest Monetary Policy Report it explained that rising fertiliser prices will also lead to higher costs of imported food.
Additionally, it said the war in Ukraine has disrupted the supply of agricultural factor inputs such as potash fertiliser, adding that reduced fertiliser application may result in lower crop yields which can elicit export restrictions from major food-exporting nations.
The report also noted that recent high international energy prices have boosted the public finances and external accounts, creating a welcome space for financing further adjustment to the lingering effects of the pandemic.
In the very uncertain global setting, however, the situation can change rapidly and care must therefore be taken to avoid considering this “windfall” as permanent, the report said.
It advised that much needed structural reforms should also be accelerated to reduce bureaucracy and strengthen T&T’s dynamism and attractiveness in tourism, financial and other service markets. Regarding domestic economy and prices the report outlined that pandemic-related undercurrents showed signs of abating following an uptick in energy sector activity during the fourth quarter of 2021, alongside the reopening of many non-energy sector entities.
It noted that inflation remained relatively anchored, but several supply-side factors such as high and rising international food prices and international transport delays had notable pass-through to domestic prices.
Elevated energy prices and increased external demand set the tone for improved exports, it added.
The report further noted that foreign currency credit remained weak in 2020 and in early 2021 before turning positive in late 2021, but foreign currency deposits rebounded in early 2021 and strengthened toward the end of the year.
The decline in foreign currency credit, which began in 2020 with the advent of the pandemic, persisted into 2021 but turned positive in late 2021, it said.
Additionally, it said on a year-on-year basis, foreign currency credit expanded by 12.9 per cent in March 2022 compared to a decline of 1.8 per cent one year prior.
“While credit extended by banks expanded by 15.5 per cent, lending from non-banks contracted by 47.3 per cent.
“Following consistent declines in early 2021, foreign currency business loans turned around in December 2021 and continued this upward trajectory into 2022,” the report cited.
It also noted that the sales of foreign exchange by authorised dealers to the public reached US$1,994.5 million over the four months of 2022, an increase of 37.6 per cent relative to the same period a year prior.