Minister of Finance Colm Imbert says the Central Bank has an obligation to inform him of monetary policies, but he said his ministry did not receive the contents of Central Bank Governor Jwala Rambarran's statement about a recession prior to its delivery on Friday.
Imbert said the Central Bank Act at Section 49 states, "The Bank shall keep the Minister informed of the monetary and banking policy pursued or intended to be pursued by the Bank."
Section 50 of the Act makes it clear that "the Minister may, after consultation with the Governor, issue to the Bank such written directives of a general nature as may be necessary to give effect to the monetary and fiscal policies of the Government."
In other words, Imbert said, the Central Bank was required to keep the Government properly informed of its policies and do what was necessary to support the monetary policies of the Government.
He said he has taken note of a general perception that has crept in over the years that the Central Bank can act independently of the Government in all matters, but said that was not the case.
Imbert said he saw the statement when he returned home on Friday night after the sitting of Parliament.
"I am advised it was received by email at the ministry after midday," he said in response to questions from the Sunday Guardian.
Rambarran announced that T&T's economy was in a recession and also named the largest users of foreign exchange.
Asked if there was a misalignment between the Central Bank's monetary policy and the Ministry of Finance's fiscal policy, Imbert said there should not be any misalignment and that the Government was studying the governor's monetary policy statement carefully to see whether it was in fact aligned with government's policy.
However, Imbert said he did not want to make any specific comments on that matter until his economic advisers and technocrats did their analysis and reported to him. Asked if it made sense to increase interest rates if the economy was in a recession, he said, "In most countries, interest rates hardly ever increase during a recession. Actually, the opposite tends to happen: as the economy contracts, interest rates fall in tandem.
"Further, central banks use tools to control interest rates, and during a recession, they usually try to coax rates downward to stimulate the economy."
The Finance Minister said when a recession occurred, people became risk averse and conservative, and were more apt to save what they have, rather than to borrow for investment purposes.
He added that following the basic demand curve, low demand for credit pushes the price of credit, that is, interest rates, downward.
"Accordingly, on the face of it, increased interest rates in a recessionary period appear to be counter-intuitive."
No plans to move exchange rate
Despite a decline in foreign exchange earnings as a result of the drop in oil prices, Imbert said the country's level of foreign reserves was still at 11 months of import cover which was well above the common standard that said that reserves that could cover three months' worth of imports were adequate.
He said, however, "there are several countries that maintain six to 12 months of import cover, so the theory is not cast in stone. At this stage we have no plans to move the exchange rate, but we are keeping the situation under constant review."
Asked if he found it appropriate for Rambarran to name the largest forex users, the minister said there was a strong view that it was not but he was seeking advice on the matter before making a definitive statement. He said concerns had been expressed to him by several stakeholders, including the business community, about that matter.