Central Bank notes lag in data collection; maintains repo rate at 3.5%

Central Bank of TT. Photo: Jeff K Mayers
Central Bank of TT. Photo: Jeff K Mayers

The energy sector contracted in the second quarter of 2020, the Central Bank said, due to the idling of several methanol and ammonia plants and lower natural gas production. In the non-energy sectors, the bank said early indicators pointed to sluggishness in some areas such as distribution, manufacturing and construction while finance, insurance and real estate remained more buoyant. The bank released its monetary policy report on Friday – the third for the year – but it noted that the present environment, amidst the covid19 pandemic, likely affected data compilation. "In noting the lags in the official inflation and labour statistics—latest available to March 2020 and the third quarter of 2018 respectively – the monetary policy committee considered that monitoring high frequency data was particularly essential at this time," the bank said.

The bank noted as well that its "strong policy actions" in March 2020 to mitigate the economic fallout of covid19 restrictions – a simultaneous 3 per cent drop in the reserve requirement and 1.5 per cent reduction in the repo rate – are still working their way through the financial system. Interest rates have fallen somewhat: the average prime lending rate from 9.25 to 7.50 per cent while average loan rates declined from 7.52 to 7.40 per cent, and average deposit rates from 0.68 to 0.64 per cent over the second quarter. Despite a significant boost to liquidity, credit growth stayed slow, with business credit contracting by 6.1 per cent year-on-year in June 2020. The weak credit response is due to both demand and supply factors as businesses seem reluctant to borrow more given the uncertain environment, while banks are cautious about assuring the quality of fresh loans, the bank said.

Central Bank indicated in its report that the economic strain felt in TT is the same as what is being felt worldwide.

“Globally, there is little sign of an overall deceleration in the pace of infections of the covid19.

virus. The economies of many developed and developing countries contracted in the second quarter of 2020, despite significant fiscal and monetary policy actions as authorities implemented restrictions to curb the spread of the virus. In the Caribbean region in particular the tourism dependent countries have been especially hard hit in the context of marked declines in persons willing to take overseas vacations and travel restrictions.”

“Central bank continues to monitor and analyse developments, and will take further action as necessary,” the release said. The bank maintained the repo rate (its lending rate to commercial banks) at 3.50 per cent. The next monetary policy report will be in December.

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"Central Bank notes lag in data collection; maintains repo rate at 3.5%"

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