Central Bank: Non-energy sector still lacklustre

PRODUCTION indicators suggest a pick-up in economic activity in the energy sector during the second half of 2017, but activity in the non-energy sector remained lacklustre, reported the Central Bank in its March Monetary Policy Announcement.

The bank reported domestically headline inflation measured 0.9 per cent in February 2018 (year-on-year) with core inflation (which excludes food prices) even lower, at 0.5 per cent. Inflationary pressures have eased considerably, symptomatic of tepid demand conditions, the bank noted.

The bank reported since the last meeting of the Monetary Policy Committee (MPC) in November 2017, global growth prospects have continued to strengthen. In January 2018, the International Monetary Fund marginally raised its projections for global growth in 2018 and 2019, partly to take into account tax changes in the US, while noting the risks from a possible rise in global trade protectionism.

Monetary policy actions in advanced economies have been muted thus far in 2018 with the exception of the US, where the Federal Reserve increased the Federal Funds rate in March – representing the first in a series of rate hikes expected this year, the bank reported.

The bank stated that within the energy sector, natural gas production rose year-on-year by 10.0 per cent in the second half of 2017, mainly owing to new gas output from the bpTT Juniper field, while petroleum output improved by just 0.9 per cent. The increase in natural gas output helped to alleviate the gas shortages in the downstream sector, facilitating higher output of methanol and liquefied natural gas.

The MPC in its deliberations noted that domestic inflation was low, there appeared to be little price pressure in the short term, and the nascent recovery in late 2017 in the energy sector had not yet been reflected in a boost to non-energy activities.

At the same time, the committee remained concerned about the potential impact of the US Fed’s anticipated actions in coming months on TT-US interest rate differentials and consequently on TTo’s external balance.

“Considering these factors, the MPC agreed to hold the repo rate at 4.75 per cent. The bank will continue to carefully monitor and analyse international and domestic developments.”

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