Even as the international economy appears less optimistic, with the International Monetary Fund revising its World Economic Outlook for 2019 downward from 3.5 per cent to 3.3 per cent, the Central Bank in its Monetary Policy announcement, released Friday, is reporting evidence of an energy-led recovery domestically, driven by the boost in natural gas output from BPTT’s Juniper, and more recently, Angelin projects.
This has helped to stimulate petrochemical production, which has been affected by natural gas shortages. While gas is picking up, crude oil production has continued to decline steadily owing to mature acreages. The bank also said 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).
While the bank maintained a repo rate of five per cent, which it had raised in an attempt to mitigate increasing interest rate differentials between local rates and US treasury bond rates, which had seemed to be on an upward trajectory, the report noted that given concerns about a slowdown in the US economy, market analysts are predicting the Federal Reserve may cut interest rates to stimulate growth.
The bank also noted escalation of the US-China trade war and tensions between the US and Iran, which have dampened economic sentiment and clouded the short-term outlook for energy prices.
Low inflation persists domestically for the first five months of 2019, and although there was a momentary uptick to 1.6 per cent in March (year-on-year), headline inflation settled at 1.2 per cent in May. In the short term, low inflation is projected to continue, although adverse weather conditions could affect food crop production and cause a price spike.
The bank also noted with concern the decline in business credit – down 4.3 per cent year on year in March – although consumer credit has grown six per cent in the same period. Mortgage credit growth remained buoyant at 8.8 per cent. Liquidity among banks has been very comfortable, with commercial banks’ excess reserves stored at the Central Bank averaging nearly $4 billion in May, compared to $2.7 billion in March. The bank said it was 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.
“Nascent domestic recovery (is) still concentrated on the energy sector, in an environment of low inflation…The external environment for TT remains quite complex in light of the US-China trade tensions, the unfolding situation with Iran and the economic spillovers from neighbouring Venezuela. The bank will continue to carefully monitor and analyse international and domestic developments.”