The Central Bank of Trinidad and Tobago (CBTT) says core inflation is “still stable” and the non-energy sector continues to drive economic activity.
This information was contained in the bank’s inaugural Monetary Policy Announcement (MPA), released yesterday afternoon. The MPA has officially replaced the bank’s monthly “Repo Rate” news release.
“There are encouraging signs that the domestic economy appears to be on a path of recovery, as evidenced by four consecutive quarters of slow but steady year-on-year growth from July 2012 to June 2013.” In comparison, there was a contraction in the preceding four quarters which averaged 1.6 percent.
The bank noted economic growth has been mainly driven by the non-energy sector. This trend is expected to continue into the second half of 2013 because of planned maintenance of gas and downstream plants, which began earlier this month, is likely to impact the performance of the energy sector.
“This turnaround was driven by the non-energy sector where output rose at an average pace of nearly 2.5 percent in the four quarters to end-June 2013. The energy sector expanded at a much slower average rate of 0.7 percent (year-on-year) in the period, as intensified maintenance work and security upgrades posed a severe drag on the sector’s performance.”
Referring to the latest available data from the Central Statistical Office, CBTT said on a year- on-year basis, headline inflation rose to 5.1 per cent in August 2013 from 3.8 percent in July 2013 and 7.9 percent one year earlier.
“This was mainly due to a rise in food inflation, which increased to 7.7 percent in August 2013 from a low of 4.8 percent in the previous month. Core inflation inched slightly upwards but remains stable at a little over 3.0 percent in August 2013.”
CBTT also said “while core inflation demonstrated a slight ‘uptick’ in August 2013, underlying inflationary pressures still remain well contained.”
It expressed concern however, about elevated liquidity levels and the fact that July 2013 was the eighth successive month of decline in business lending, “both of which reflect continued caution on the part of the private sector.”
Although the United States Federal Reserve decided earlier this month not to begin tapering of its quantitative easing programme, CBTT noted “changes in market expectations about the future path of U.S. monetary policy are influencing the trajectory of global interest rates.
“Against this backdrop, the Central Bank views the present accommodative monetary policy stance as appropriate to support the ongoing recovery, and has decided to maintain the ‘Repo’ rate at 2.75 percent.”
Overall private sector credit growth though slow, has been relatively steady thus far in 2013.
On a year-on-year basis, private sector credit granted by the consolidated financial system grew by 3.0 per cent in July 2013 compared with just over 2.5 percent in June 2013.
Consumer lending continued to strengthen, increasing by almost 6.5 percent (year-on-year) in July from 6.2 percent in June 2013.
“On the other hand,” CBTT stated, “business loans contracted for the eighth consecutive month, falling by 5.0 per cent in July 2013. Real estate mortgage loans maintained its strong double digit growth. Large net domestic fiscal injections along with weak credit demand contributed to a rapid build-up of liquidity levels in the financial system over the past few months.”
Commercial banks’ excess reserves at CBTT rose from a daily average of $5.4 billion in July 2013 to a daily average of $6.3 billion in August.
“Excess reserves increased even further to a record daily average of $8.3 billion over the first three weeks of September. While a $1 billion Central Government treasury bond offered in early August 2013 was under-subscribed, the allotment of almost $560 million helped to reduce some of the excess liquidity.”
Some of this excess liquidity was removed between July – September 2013 through CBTT’s open market operations and sales of foreign exchange.