Tancoo to Government: Why the mixed signals from Central Bank?
UNC Shadow Minister of Finance, MP Dave Tancoo is calling into question the very latest move by Central Bank to reduce the Liquidity Reserve Ratio from 14% to 10%; one that will see approximately $4 billion being injected into monetary circulation.
However, while Tancoo hopes that this liquidity insertion will result in lower interest rates and stimulate loan investment, he also expresses similar concern alongside other economists about the reasons behind the abrupt and contradictory policy change.
“Just three weeks ago, the Central Bank issued a monetary policy announcement where, in maintaining the Repo Rate at 3.5%, the authority stated that “financial sector liquidity remained ample during the second quarter of 2024”, as well as “Domestically, the low level of inflation and buoyancy of credit were supportive of the ongoing economic recovery”, so why, within twenty-one days, on July 19, 2024 did the Central Bank issue another Monetary Policy reducing the reserve requirement by 4%?”
MP Tancoo says that these two policy announcements seem somewhat contradictory and send mixed signals to anyone with a vested interest in the country’s macroeconomic state of affairs.
“It is beyond passing strange that the Government, through the Central Bank would make these policy changes in such close proximity, based on a mere two-week observation period? Or does the Central Bank have knowledge of a longer-term effect that they are not saying. If you read the release dated July 19th, the language is very ambiguous; there is a complete lack of clear and sensible reasons why Government would suddenly inject $4 billion cash into the system. Something clearly does not add up!”
The Opposition MP also notes the increase in system liquidity as potentially leading to more accessible loans for businesses and individuals, without a reduction in the repo rate – the rate at which commercial banks borrow from the central bank – the cost of borrowing may not decrease significantly.
“The last time the reserve ratio was adjusted by Central Bank was in March 2020, but unlike the present scenario, there was also a simultaneous reduction in the repo rate by 150 basis points. However, in the current circumstance, if the cost of borrowing remains high due to an unchanged repo rate, there is no incentive for businesses and consumers to take out loans. What then would the Commercial Banks do with this extra $4 billion? Is the Government hiding some upcoming mega investment plan that they are hoping to entice Commercial Banks’ buy-in?”
The Oropouche West MP is calling for the Central Bank to explain their actions, given the serious macro-economic ForEx problem that faces the country at this time.
“One can easily understand that the high ForEx outflows from T&T could impact our liquidity position, however I believe that this monetary injection has less to do with forex outflows and more to do with the real and true state of the economy, where people at this time have no cash in hand, but are being enticed to take out loans for every and anything under the sun. I am fearful that it is this large scale lending and the resultant indebtedness that is propping up our economy, instead of savings and investment.”
Tancoo said that the population must also be very aware that in addition to the rate of interest on loans, adding to the cost of borrowing are the unusually high and prevalent fees that are associated with banking transactions, even in the absence of loans.
“I am calling on both the Central Bank and the unusually silent Minister of Finance to tell this country what is the real and true state of the economy. Instead of hiding behind his usual heap of excuses, including denying knowledge of Central Bank decisions as well as citing selected data to make pointless arguments, Minister Colm Imbert has a duty to inform citizens what is our economic position in light of these mixed signals from the Government.
The current and previous actions of the Central Bank and the Minister of Finance have undermined investor confidence in the domestic economy. We are now reaping the whirlwind where the population is being suffered as a result of poor policies. Absent is any real policy prescription from the Government to generate new revenue streams. It is almost as if the Government, having already indebted the population to the tune of billions by increased borrowing, is now forcing the population into further debt.”
The Opposition’s Shadow Minister of Finance says, “Central Bank must now come clean with the population. Tell us what changed within the month to warrant the change in the reserve requirement so that the population will learn the true state of our economy. We already know that the population cannot trust the Minister of Finance to tell us the truth.”