Wednesday 8 July, 2020

T&T experiences low inflation in first half of 2019

Trinidad and Tobago experienced low inflation over the first five months of 2019.

In its latest monetary report, the Central Bank said there was a momentary uptick to 1.6 percent in March 2019 (year-on-year) before headline inflation settled at 1.2 percent in May.

The Bank said the short term perspective is for continued low inflation in the next few months, although adverse weather conditions could disturb output of domestic food crops and lead to a jump in prices of affected produce. 

The inflation rate was among many local and international factors the bank's Monetary Policy Committee took in its decision to maintain the repo rate at 5 percent.

Among the committee's concerns was the 3/5 percent slowdown in growth in private sector credit by the consolidated financial system in March 2019 (year-on-year) from 4.3 percent in December 2018.

"In this context, one concern is that business credit has been on the decline—the year-on-year growth rate was -4.3 percent in March 2019—while consumer credit grew by 6.0 percent, and mortgage credit growth remained buoyant at 8.8 percent." the report said.

The report noted that liquidity among banks has been very comfortable. Commercial banks’ daily excess reserves at the Central Bank averaged $3,969 million in May compared with $2,762 million in March 2019.

The Bank said it is keeping a careful watch on the evolution of liquidity, taking into account the dynamics of the public sector financing requirements, credit conditions and the still subdued inflationary pressures.   

In noting that domestic recovery is based on energy driven by the boost to natural gas production from the Juniper and more recently Angelin projects, the Bank said this has helped to stimulate the production of petrochemicals, which had been earlier impacted by natural gas shortages.

However, it noted that crude oil production has continued to steadily decline due to mature acreages.

"While available information suggests that the recovery of the non-energy sector is not yet fully established, some key sectors including construction are expected to respond positively to the stimulus provided by the announced acceleration in capital spending by the government in the second half of the current fiscal year (April-September 2019)," the report said.

Internationally, the Bank noted that the domestic economy faces impact from the world economy which according to The International Monetary Fund seems bleak as it revised global growth projections for 2019 downward to 3.3 percent from 3.5 percent in its April 2019 World Economic Outlook.

The Bank cited further escalation of United States (US)-China trade frictions and rising tensions between the US and Iran which have dampened economic sentiment and clouded the short term outlook for energy prices, spillovers from the Venezuela situation and a potential slowdown of the US economy, which is causing market analysts to predict a cut in the US Fed funds rate as major concerns. 



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