GEISHA KOW­LESSAR-ALON­ZO

geisha.kow­lessar@guardian.co.tt

The Cen­tral Bank has de­cid­ed that it will main­tain the re­po rate at 3.5 per cent not­ing that there is ex­cess re­serves reach­ing over $10 bil­lion in mid-June 2020. The bank said there is lit­tle in­di­ca­tion there has yet been a sig­nif­i­cant pick­up in pri­vate sec­tor cred­it as busi­ness­es await a re­cov­ery in de­mand.

At its mid-March 2020 meet­ing of the Mon­e­tary Pol­i­cy Com­mit­tee (MPC) the bank said based on his­tor­i­cal ex­pe­ri­ence, the im­pact of the mon­e­tary pol­i­cy ac­tions will take sev­er­al months to ful­ly fil­ter in­to in­ter­est rates and cred­it.

The bank not­ed that eco­nom­ic ac­tiv­i­ty in T&T is grad­u­al­ly re­sum­ing, fol­low­ing sev­er­al months of the COVID-19 lock­down.

Not un­ex­pect­ed­ly, ear­li­er stay-at-home re­quire­ments re­sult­ed in a lull in ac­tiv­i­ty in most sec­tors and a re­duc­tion in dis­pos­able in­comes, the bank said. Mean­while, it added the in­fla­tion rate re­mained near ze­ro — 0.4 per cent year-on-year in March 2020 ac­cord­ing to avail­able Cen­tral Sta­tis­ti­cal Of­fice da­ta.

The lat­est fi­nan­cial in­di­ca­tors showed that lend­ing to busi­ness­es de­clined by 5.70 per cent year-on-year in March 2020, re­flect­ing a pre-pan­dem­ic trend ev­i­dent for sev­er­al months.

“De­spite the gloomy en­vi­ron­ment, the coun­try’s in­ter­na­tion­al re­serves po­si­tion re­mained strong at US$6.8 bil­lion on June 19, (around eight months of im­port cov­er), boost­ed by a re­cent US$400 mil­lion draw­down from the Her­itage and Sta­bil­i­sa­tion Fund,” the bank said.

Falling in­ter­est rates in the US mar­ket re­sult­ed in an im­prove­ment of the TT-US rate dif­fer­en­tial to 81 ba­sis points on the three month trea­suries in late June.

The bank al­so low­ered the Re­po rate by an un­prece­dent­ed 150 ba­sis points, and re­duced the re­serve re­quire­ment by 3 per cent to 14 per cent of banks’ de­posit li­a­bil­i­ties. The bank said this is in the con­text of the glob­al pan­dem­ic sit­u­a­tion, adding that al­most im­me­di­ate­ly, com­mer­cial banks cut their prime lend­ing rates, from an av­er­age of 9.25 per cent to 7.50 per cent.

Avail­able in­for­ma­tion to the end of March showed a de­cline in the weight­ed av­er­age loan rate to 7.52 per cent from 7.72 per cent three months ear­li­er and a mar­gin­al nar­row­ing of in­ter­est spreads to 6.84 per cent from 7.05 per cent over this pe­ri­od, the bank not­ed.

It added the sit­u­a­tion and out­look on the in­ter­na­tion­al front war­rant con­cern.

The In­ter­na­tion­al Mon­e­tary Fund, in its June up­date, projects that the glob­al econ­o­my could con­tract by as much as 4.9 per cent in 2020, with soar­ing pub­lic debt and a con­trac­tion in glob­al trade by 11.9 per cent.

While many coun­tries are slow­ly re­open­ing their economies, there is a ris­ing threat of a sec­ond wave of COVID-19 in­fec­tions and deaths as new hotspots emerge, in­clud­ing in neigh­bour­ing Latin Amer­i­can coun­tries, the bank said.

It added as a re­sult, stock mar­kets have os­cil­lat­ed as as­sess­ments take in­to ac­count the news on re­open­ings and mas­sive pub­lic sup­port on the one hand, against ris­ing in­fec­tion num­bers on the oth­er.

“The macro­eco­nom­ic pol­i­cy en­vi­ron­ment across the globe can best be de­scribed as in­tense and un­cer­tain, con­strained for the most part by the fis­cal space avail­able to gov­ern­ments,” the bank said.

On the mon­e­tary side, it not­ed cen­tral banks have adopt­ed an ac­com­moda­tive ap­proach, low­er­ing in­ter­est rates, in­creas­ing as­set pur­chas­es, and pro­vid­ing liq­uid­i­ty sup­port.

The MPC al­so eval­u­at­ed the fore­go­ing fac­tors care­ful­ly, in par­tic­u­lar the sub­stan­tial liq­uid­i­ty in the do­mes­tic sys­tem and the ex­pec­ta­tion that the March 2020 mon­e­tary pol­i­cy ac­tions will have a stronger ef­fect on cred­it as the do­mes­tic econ­o­my opens up.