The Central Bank of T&T (CBTT) announced on April 29 that headline inflation, measured by the retail price index, declined to 9.4 per cent year-on-year (y-o-y) in the month of March, down from 10.7 per cent in February. The food sub-index, the main driver of headline inflation, slowed to 21.3 per cent in March (y-o-y) down from 25.1 per cent in February. Core inflation (inflation ex-food prices) fell marginally to 2.7 per cent in March from 2.8 per cent in the previous month. Figure 1 plots the monthly change in inflation over the last 12 months. On a monthly basis, headline inflation fell by 0.70 per cent in March following a decline of similar decline in the previous month. The fall in the food price sub-index was led by lower y-o-y price increases for the month of March versus one month ago in the sub-indices of fruit (31.4 per cent from 33.3 per cent), vegetables (31.1 per cent from 33.3 per cent) and fish (7.3 per cent from 7.7 per cent). There were, however increases in the sub-indices of bread and cereals (0.80 per cent from 0.2 per cent), meat (10.7 per cent from 9.9 per cent), milk cheese and egg (12.5 per cent from 11.5 per cent), and sugar, jam, confectionery, etc, (4.4 per cent from 3.7 per cent).
Core inflation fell marginally to 2.70 per cent in March from 2.8 per cent in February, following a decrease in the sub-index of clothing and footwear (-1.5 per cent from -0.2 per cent), tempered by a y-o-y slight increase in the alcoholic beverages and tobacco (6.2 per cent from 6.1 per cent) sub-index. Over the past 12 months, private sector credit fell by 1.7 per cent as at February 2011. The bank noted that of the three major categories of private sector credit, growth in consumer lending rose by a robust 3.9 per cent following an increase of 3.4 per cent in the previous month. Credit to business sector experienced the most significant monthly increase since September 2010, growing by 1.9 per cent in February. Real estate mortgages remained strong, growing by 7.70 per cent in February following a 7.6 per cent increase in the previous month. Business lending was the only category that declined by 4.8 per cent.
Excess commercial bank balances at the Central Bank averaged $1.10 billion in April, down from $1.60 billion in March, compared to $1.9 billion in December 2010. Faced with the arduous task of stimulating growth, especially in the non-energy sector, the CBTT has lowered its benchmark rate, the repo rate, over the past few months to 3.25 per cent. The bank noted that the reductions are still working their way through the financial system as commercial banks adjust their lending rates. Against this backdrop the CBTT has decided to leave their repo rate unchanged. The CBTT also left its other monetary policy instrument, the reserve requirement ratio, unchanged at 17.00 per cent.
Interest Rate Report and Outlook
USD rates
The Standard & Poor's 500 Index rose 2.16 per cent over the last month, the FTSE 100 rose 2.08 per cent, while the DAX rose 2.77 per cent. Year-to-date, the indices were up 5.73 per cent, 0.34 per cent, and 6.69 per cent, respectively. The yields on the 10-year Treasury fell to 3.28 from 3.49 per cent at the end of March. The longer 30-year note also fell to 4.39 from 4.52 a month ago. Year-to-date, US treasuries had a positive return of 4.75 per cent, as indicated by the USD Treasuries Total Return Index, over the last month the index rose by 1.25 per cent.
TTD rates
The Central Bank's success in mopping up some of the excess liquidity in the banking system has prompted the three month Treasury Bill Yield to increase to 0.40 per cent, from a historic low of 0.28 per cent, during the latest auction for bills issued on May 3. Figure 2 illustrates the movement in the 91 day Treasury Bill over the last year. Yield on the longer 182 Treasury Bill also inched upwards to 0.55 per cent at the latest auction on May 5 up from a historic low of 0.48 per cent, as illustrated in Figure 3. Returns on short-term investments such as, money market mutual funds have flattened out over the past year; on average investors will earn 2.41 per cent on their investments.
TTD YIELD CURVE
National Insurance Property Development Company Ltd (NIPDEC) issued a $750,000,000 19-year bond with a fixed coupon rate of 6.55 per cent on May 3. This was the only state enterprise bond announcement for the year and the results should be announced this week. The shorter end of the T&T Bond Yield Curve (Figure 4) remained depressed as yields remain at low levels as investors flocked to the safety of Government short-term instruments coupled with excess liquidity in the system. The longer end of the curve had an upward sloping bias as opposed to the relatively flat slope observed in recent periods.
The benchmark yields in constructing the curve were
Tenor (years) Market Ave Yield
3 1.72%
5 3.49%
10 4.64%
15 5.45%
20 6.14%
Note: The BSL yield curve was constructed using actual and empirical trading and indicative data, plotting the data points and interpolating to develop a spectrum of yields across the curve. Actual short-term rates were obtained by using the latest Treasury Bill yields.