geisha.kowlessar@guardian.co.tt
The Central Bank, has maintained the Repo rate at 3.50 per cent even though it admits to increasing inflationary pressure.
In making the announcement yesterday the bank explained the monetary policy in 2022 has centred on supporting the domestic recovery following the COVID-19 pandemic while managing risks posed by mostly externally generated inflation and higher interest rates abroad.
The bank also noted that domestic economic activity is expected to improve in the short to medium-term, adding that growth will likely be driven by energy production, which is anticipated to benefit from the commencement of several upstream projects.
However, the report warned that domestic inflation will continue to be impacted by the external environment, the fallout from adverse weather and the capping of the fuel subsidy.
“The most significant impact on core inflation is anticipated to come from the pass-through of higher fuel prices to the transport sub-index... The capping of the fuel subsidy is expected to have a notable impact on headline inflation should higher fuel prices result in broad-based increases in maxi and taxi fares. Inflationary pressures are anticipated to persist into 2023 but remain relatively contained.” the report read.
Several supply-side factors, such as strong international food prices, high shipping costs, and international transport delays, had notable pass-through to domestic prices in September 2022, keeping food inflation relatively elevated, the report outlined.
Additionally, it said, while core inflation inched up slightly, food inflation however, surged during the third quarter due, in part, to lagged transmission effects.
Some food categories with a relatively large import content saw continued price increases; these included butter, margarine and edible oils along with bread and cereals, the report identified.
The report also warned that severe flooding in parts of the country during the final quarter is likely to impact prices of locally grown produce, in addition to the public cost of rebuilding road and other infrastructure alongside support to affected families.
The Monetary Policy Report said there is uncertainty surrounding the trajectory of international energy prices.
Though prices eased in September, an October 2022 decision by OPEC to reduce production quotas by two million barrels of oil per day from November 2022 may add upward price pressure if recent global demand estimates continue to hold, the bank said.
Further, it added that continued attempts by European Union countries to wean themselves off Russian oil, including an impending embargo on Russian seaborne crude in December, create the potential for higher oil prices.
In giving context as to why the Central Bank kept its monetary policy stance unchanged it explained on the domestic front, there was evidence of broad-based growth, in both the energy and non-energy sectors.
“Buttressed by a robust expansion in natural gas production, preliminary indicators suggest a continued rebound in economic activity during the third quarter of 2022.,” it further explained.
The Bank also noted non-energy sector production marginally improved over this period.