Central Bank Governor: TT needs more than just devaluation for economic stability

DEVALUATION of the TT dollar should not be the only solution to the country's macroeconomic challenges, Central Bank Governor Dr Alvin Hilaire said Thursday.

Instead, he said, what is really needed for TT to retain a balance is solutions on a macroeconomic scale that would make businesses in TT more flexible and able to manage on foreign markets.

“It is no secret that there is an imbalance in the foreign exchange market,” Hilaire said during the Central Bank’s financial stability webinar. “That has been due to the collapse in energy prices; we had some production difficulties, and covid19 didn’t help. What is really important for stability is an appropriate combination of fiscal, monetary and structural policy.”

Hilaire said policies are particularly needed to make ease of doing business easier and getting markets in TT to be more flexible, so they could take advantage of opportunities in outside markets.

While depreciation of the dollar is something that may assist in managing TT’s economy in some scenarios, without the support of policies to give the economy more flexibility the change would be temporary and could have an adverse effect.

He referred to a study done by the International Monetary Fund (IMF) which pointed out that in Latin American and Caribbean countries, if the depreciation of the dollar was steep enough, the economy would eventually level off.

But, Hilaire said that balance would come because of import compression, which means that government would prioritise which items can be imported into the country.

“So there was a huge compression of imports as opposed to exports. That is imperative to note.”

On Monday, Finance Minister Colm Imbert said there would be no useful purpose that could be served by devaluing the TT dollar especially at a time when less foreign exchange is coming into the country.

Imbert said Central Bank models suggested that if the government were to devalue the dollar, government would gain about US$30-40 million, but inflation would immediately increase.