Trinidad and Tobago’s central bank left its benchmark repo rate at 5.0 percent, balancing the implications of international financial developments for the country’s external balances against a slackening of growth momentum in the third quarter amidst very low inflation.
The Central Bank of Trinidad and Tobago (CBTT), which in June raised its rate for the first time since December 2015, added domestic inflationary impulses have been very muted this year in the context of sluggish demand.
Inflation fell to 1.0 percent in November from 1.2 percent in October and the central bank said preliminary data used to gauge non-energy economic activity was also lower in the third quarter of this year relative to the same period in 2017.
After a positive first half, energy production declined in the third quarter as year-on-year gas output waned due to the base effect and maintenance. Crude oil output also slipped in the context of maturing fields and methanol output fell due to repair work.
In the second quarter gross domestic product grew by an annual 2.8 percent, down from 3.2 percent in the first quarter.
But private sector credit continued to grow at a steady pace, the central bank said, with lending to consumers up an annual 7.1 percent in October while lending to businesses fell 1.3 percent, reversing a growth trend since the start of the year.
A widening of the negative differential between Trinidad and Tobago and U.S. 3-month treasury yields over the fourth quarter of mid-December to minus 112 basis points from minus 89 reflected faster increases in U.S. yields, CBTT said.
In September the International Monetary Fund said it expected Trinidad and Tobago’s economy to slowly recover from a deep recession, underpinned by a strong recovery in gas production while weak activity in construction, financial services, trade, continued foreign exchange shortages, and slow pace of public investment dampens non-energy sector growth.
The IMF forecast 2018 growth of 1.0 percent, up from a contraction of 2.6 percent in 2017, and 2019 growth of 0.9 percent.
Inflation is seen averaging 2.3 percent this year, up from 1.9 percent last year, and 3.1 percent in 2019.
Trinidad and Tobago’s dollar has weakened slightly this year to around 6.80 today per U.S. dollar, down 0.4 percent.
The Central Bank of Trinidad and Tobago released the following statement:
Domestically, after a positive outturn in the first half of 2018, a number of factors contributed to declines in production indicators in the energy sector in the third quarter. The year-on- year increase in natural gas production waned as the base effect of the coming on-stream of the Juniper natural gas platform in August 2017 ended, and several natural gas facilities suspended operations for maintenance within the three month period. Meanwhile crude oil production continued to slip in the context of maturing of the fields and methanol output was negatively affected by repair work to the plants. Preliminary indicators used by the Central Bank to measure non-energy economic activity, particularly construction and distribution, were also lower in the third quarter of 2018 relative to the same period in 2017.
Inflation remained low (1.00 per cent, year-on-year) in November 2018 with food prices contracting and core inflation holding steady. The floods of late October/early November resulted in price increases of certain fresh vegetables but these were offset by lower prices for dried vegetables, fruits and meat. The one dollar increase in the price of a litre of super gasoline (from $3.97 to $4.97) in October 2018 led to only a small rise in general transportation costs to date. Throughout 2018 domestic inflationary impulses have been very muted in the context of sluggish demand.
The Monetary Policy Committee (MPC) considered carefully the implications of international financial developments and prospects for Trinidad and Tobago’s external balances. At the same time, it noted that the domestic growth momentum appeared to have slackened in the third quarter while inflation remained very low. Taking all factors into consideration, the MPC decided to maintain the repo rate at 5.00 per cent.
The Central Bank will continue to carefully monitor and analyze international and domestic developments. The next Monetary Policy announcement is scheduled for March 29, 2019.”