Central Bank: Economy stable, for now

THE GOOD news is, economically, TT is rather stable. The bad news is, there are several vulnerabilities that could tip the economy into crisis and these must be monitored diligently.

This was the update given by the Central Bank in the Financial Stability Report on Thursday.

Central Bank Governor Dr Alvin Hilaire said the bank is in “high alert mode” when it comes to the supervision of the financial sector, recognising that most of TT’s financial woes had historically come shortly after domestic macroeconomic shocks.

Hilaire said as far as financial stability indicators go, TT ranks quite well. Capital available to banks, compared to the assets they have which could be lost, is at a good ratio and is much higher than the eight to ten per cent ratio limit.

Non-performing loans are very small as well and pension funds, as well as other aspects of the insurance sector, are doing well and seeing growth.

“So, we start from a strong base.”

But, policy action which has seen Central Bank maintaining the repo rate and reserve requirements, which the bank hoped would mitigate the rate of inflation and increase the supply of money in the economy, has not yet taken effect.

“So far the response has been sluggish. We think it is a demand and supply matter.”

Hilaire explained that from their reports, it seems that people are less keen to put themselves in further debt, given the uncertain future borne out of the spread of covid19.

Banks are also concerned about maintaining their credit quality.

“Although we pat ourselves on the back and say everything is fine, there are still vulnerabilities. People are indebting themselves more and more and we need to be aware of that.”

Hilaire said household debt grew about ten per cent since 2010 and about a third of the financial system’s assets are public sector assets.

“Concentration in any sector is cause for review,” Hilaire said and added that while there wasn’t any evidence of overcrowding in any one sector, things still have to be monitored.

Hilaire also said the demands of digitalisation could put the economy at risk, as the risk of loss owing to cyber crime mounts. These risks continue to be a factor even as more people use electronic transactions in an effort to continue to conduct their business while maintaining health regulations put in place to contain the spread of covid19.

Most of all, Hilaire noted TT’s susceptibility to macroeconomic shocks borne out of worldwide scenarios like the rapid decline in energy prices, natural disasters and global pandemics.

These situations could cause worldwide shocks which would adversely affect TT.

Hilaire said for TT to continue to avoid financial disaster, the country would need to advance the required legislation that would manage TT’s economy and update it to treat with modern world challenges. The country would also need to continue to supervise the economy, and develop a risk-based approach to that, in order to have some foresight on changes that could affect the economy, as well as strengthen TT’s ability to weather any worldwide events which will, sooner or later, affect TT.

“It is clear that we are in a difficult situation that has macroeconomic impact and we need to be aware of this and we need to, as the saying goes, take in front before in front takes us.”