The Cen­tral Bank yes­ter­day de­clared that the out­look for the T&T econ­o­my for this year "looks favourable," bar­ring ma­jor ex­ter­nal shocks.

T&T's mon­e­tary au­thor­i­ty de­liv­ered this analy­sis of the lo­cal econ­o­my in its Mon­e­tary Pol­i­cy An­nounce­ment, which was is­sued yes­ter­day on the last day of the first quar­ter.

The Cen­tral Bank de­cid­ed to keep its re­po rate–which in­flu­ences the tra­jec­to­ry of in­ter­est rates through­out the econ­o­my–at 3.50 per cent, a rate it has main­tained for the last three years.

Re­flect­ing on the econ­o­my for the bal­ance of 2023, the Cen­tral Bank said: "In terms of eco­nom­ic ac­tiv­i­ty in Trinidad and To­ba­go, lat­est es­ti­mates put growth in 2022 at around 2.5 per cent. This re­flect­ed a rel­a­tive­ly favourable per­for­mance in the en­er­gy sec­tor along­side a grad­ual re­vival in non-en­er­gy pro­duc­tion.

"There is some ear­ly ev­i­dence of im­prov­ing labour mar­ket con­di­tions based on ob­served in­creas­es in labour force par­tic­i­pa­tion in the third quar­ter of 2022 and the de­cline in the num­ber of per­sons re­trenched dur­ing the sec­ond half of 2022. The out­look for 2023 looks favourable, bar­ring ma­jor ex­ter­nal shocks."

The Mon­e­tary Pol­i­cy An­nounce­ment in full is be­low:

The glob­al econ­o­my is re­bound­ing faster than ear­li­er an­tic­i­pat­ed from the COVID-19 pan­dem­ic.

How­ev­er, the head­winds of per­sis­tent in­fla­tion, on­go­ing geopo­lit­i­cal ten­sions and fresh fi­nan­cial sta­bil­i­ty con­cerns in ear­ly 2023 cloud the out­look.

The fail­ure of a few banks in the Unit­ed States as well as one in­ter­na­tion­al bank prompt­ed co­or­di­nat­ed ac­tion by fi­nan­cial au­thor­i­ties to avoid wide­spread con­ta­gion. At the same time, mon­e­tary pol­i­cy tight­en­ing con­tin­ued, al­beit with a more guard­ed ori­en­ta­tion on fu­ture rate in­creas­es.

For ex­am­ple, in March 2023, the US Fed­er­al Re­serve in­creased the tar­get range for the fed­er­al funds rate by 25 ba­sis points to 4.75–5.00 per cent.

With some of the sup­ply-side im­puls­es to in­fla­tion ta­per­ing off, there is an ex­pec­ta­tion that glob­al in­fla­tion will mod­er­ate lat­er in 2023. En­er­gy prices have al­ready demon­strat­ed some soft­en­ing.

West Texas In­ter­me­di­ate (WTI) crude oil prices moved from an av­er­age of US$76.52 in De­cem­ber 2022 to US$67.64 per bar­rel at mid-March 2023. Nat­ur­al gas prices (Hen­ry Hub) fell from US$5.50 per mmb­tu to US$2.24 per mmb­tu over this pe­ri­od.

Do­mes­tic in­fla­tion mod­er­at­ed in Jan­u­ary. Ac­cord­ing to the Cen­tral Sta­tis­ti­cal Of­fice, head­line in­fla­tion de­cel­er­at­ed to 8.3 per cent in Jan­u­ary 2023 (year-on-year) com­pared with 8.7 per cent a month ear­li­er.

Food in­fla­tion re­mained un­changed at 17.3 per cent, with slow­er price in­creas­es for fish, breads and ce­re­als. Core in­fla­tion (which ex­cludes food items) slowed to 6.1 per cent from 6.7 per cent, as price in­creas­es eased for hous­ing, com­mu­ni­ca­tion and fur­nish­ings. The rate of price in­creas­es for build­ing ma­te­ri­als al­so de­cel­er­at­ed.

With re­spect to fi­nan­cial in­di­ca­tors, liq­uid­i­ty re­mains am­ple and cred­it buoy­ant, while in­ter­est dif­fer­en­tials widened. Com­mer­cial banks’ ex­cess re­serves at the Cen­tral Bank fell by around $400 mil­lion, from $6.7 bil­lion at the end of De­cem­ber 2022 to $6.2 bil­lion at March 28, 2023.

Con­tribut­ing to the de­cline were more ex­ten­sive open mar­ket op­er­a­tions—net trea­sury bill sales of around TT$1 bil­lion—and US$300 mil­lion in for­eign ex­change in­ter­ven­tions by the Cen­tral Bank.

Fi­nan­cial sys­tem lend­ing to busi­ness­es ex­pand­ed by 9.8 per cent in De­cem­ber 2022 (year-on-year). Cred­it growth to the con­struc­tion and man­u­fac­tur­ing sec­tors (18 and 11 per cent re­spec­tive­ly) were par­tic­u­lar­ly ro­bust, while con­sumer cred­it gath­ered mo­men­tum.

Mean­while, the dif­fer­en­tial be­tween in­ter­est rates on three-month trea­sures in Trinidad and To­ba­go and the Unit­ed States moved to -429 ba­sis points in Feb­ru­ary 2023. This com­pares to –392 ba­sis points at the end of De­cem­ber 2022 in the con­text of US Fed tight­en­ing.

There is ev­i­dence of a slight up­ward move­ment in do­mes­tic in­ter­est rates in re­cent months; the rise in av­er­age rates on loans ex­ceed­ed those on de­posits re­sult­ing in an ex­pan­sion in the loan/de­posit spread by 5 ba­sis points to 6.36 per cent.

In re­view­ing ex­ter­nal de­vel­op­ments, the Mon­e­tary Pol­i­cy Com­mit­tee (MPC) took par­tic­u­lar note of the re­cent bank­ing prob­lems and the po­ten­tial reper­cus­sions on glob­al fi­nan­cial sta­bil­i­ty. While do­mes­tic in­fla­tion had shown signs of slow­ing down, the MPC ac­knowl­edged that unan­tic­i­pat­ed ex­ter­nal im­puls­es and sec­ond round ef­fects of the ad­just­ment to lo­cal fu­el prices could tem­per fur­ther re­duc­tions in in­fla­tion in the short run.

The cur­rent buoy­an­cy in cred­it was wel­come in fos­ter­ing growth that was still at an ear­ly stage, but need­ed to be close­ly mon­i­tored giv­en the im­pli­ca­tions for de­mand pres­sures and the qual­i­ty of bank as­sets.

The MPC al­so not­ed the im­pact that the Bank’s re­cent open mar­ket op­er­a­tions had been hav­ing on fi­nan­cial sys­tem liq­uid­i­ty. Tak­ing all these fac­tors in­to ac­count, the MPC agreed to main­tain the re­po rate at 3.50 per cent. The Cen­tral Bank will con­tin­ue to care­ful­ly mon­i­tor and analyse in­ter­na­tion­al and do­mes­tic de­vel­op­ments and prospects.

The next Mon­e­tary Pol­i­cy An­nounce­ment is sched­uled for June 30, 2023.