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CBTT Governor: Challenges ahead in 2018

Friday, November 24, 2017
Central Bank Governor Dr Alvin Hilare release the Monetary Policy Report at the Central Bank, Port-of-Spain, yesterday.

Central Bank Governor Alvin Hilaire believes that 2018 is likely to remain challenging for the T&T economy.

"We anticipate that despite some bright spots on the horizon, 2018 will present further challenges for macroeconomic management including monetary policy" Hilaire said, as he delivered the feature address at the presentation of the bank's Monetary Policy Report (MPR) for 2017 in Port-Of-Spain yesterday.

The Governor noted that while T&T was still in a "very strong position" structural reforms were necessary to ensure the success of any current economic adjustment.

"When we had this change in the price of oil and gas, we started off in a stronger position than previous episodes when we didn't have as much reserves. This has allowed us to have a relatively measured approach to adjustment. That said, over time, our degrees of freedom will be reduced" he said, adding that it was always better for macroeconomic adjustments to be made from a "position of strength".

Hilaire pointed out that in order for T&T to emerge from the current economic downturn, a harmonized combination of policy measures was necessary.

"Monetary policy can do certain things but it cannot do it in isolation. Fiscal, structural and monetary policy at the same time have to be well coordinated for successful and durable economic adjustment" he said.

According to the 35-page MPR, pressure in the market for foreign exchange remained a feature of the local economy as a result of lower currency inflows, particularly from the energy sector.

The report stated: "Both purchases and sales of foreign exchange from by authorized forex dealers from and to the public (i.e excluding the Central Bank) declined. There may be signs that market participants are tapping precautionary foreign currency holdings as foreign currency deposits of the financial system (denominated in TT dollars) contracted over the five-month period to September 2017. The low energy prices in particular would impact the growth of officials reserves which slipped to US$8.5 billion in early November 2017, from US$9.5 billion at the start of the year."

On the issue of private sector credit and interest rate movements the MPR said: "Credit expansion to the private sector by the consolidated financial sector was negligible over the five-month period to September 2017. Business lending rose marginally, while real estate and consumer lending maintained moderate growth rates"

The report pointed out that the Central Bank had maintained a "neutral monetary policy stance" for 2017 by keeping the bank's main policy rate, the Repo rate, at 4.75 per cent throughout the year.

"In arriving at its decisions, the Monetary Policy Committee (MPC) considered domestic economic activity, the trajectory of inflation and international financial developments as reflected in interest rate differentials"

The MPR comes on the heels of the latest IMF Article IV consultation report which was released on Tuesday.

The IMF report noted that economic growth is projected to fall in 2017 and then rebound, but will remain constrained given structural impediments.

It also stated that any adjustment to the exchange rate should be introduced as part of a broader fiscal and structural reform package.



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