Central Bank report: More jobs but higher food prices

THE Central Bank said more people were now working in jobs but everyone was paying more to buy food, in its Monetary Policy Announcement dated December 27.

The bank said it was keeping the repo rate at 3.5 per cent, indicating the rate at which it lends money overnight to private banks and which may be used as a tool to try to either stimulate or dampen economic activity in Trinidad and Tobago respectively by lowering or raising the rate.

"The unemployment rate measured 4.8 per cent in the second quarter of 2024, compared with 5.1 per cent one quarter earlier."

It was 3.7 per cent in the second quarter of 2023. Saying headline inflation remained very low – at 0.5 per cent in November, up from 0.2 per cent in October – the report said core inflation excluding food prices was unchanged at negative 0.3 per cent.

It added, "Food inflation rose to 3.1 per cent, from 2.4 per cent over the two-month period."

The Central Bank said the GDP rose in early fiscal 2024 but it may have alluded to otherwise later in the year but without providing figures.

"In TT, Central Statistical Office (CSO) data showed that real GDP expanded by 1.5 per cent (year-on-year) during the first quarter of 2024.

"This reflected a resilient non-energy sector, alongside a marginal rise in energy sector output.

"According to subsequent indicators monitored by the Central Bank, constraints in natural gas availability negatively affected the energy sector during the second and third quarters. At the same time, non-energy production appears to have strengthened, notably in the trade, transportation and storage and construction sub-sectors."

The announcement spoke of a fairly healthy financial system, banking system and private sector.

"Financial system liquidity was quite comfortable throughout the second half of 2024, following the reduction of the reserve requirement in July from 14 to 10 per cent of applicable deposits. Commercial banks’ excess reserves at the Central Bank averaged $6.4 billion in the first two weeks of December."

A bank's reserve requirement is the amount of funds it holds as liquid (cash) assets in reserve to ensure that it can meet liabilities in case of sudden withdrawals. It is generally set as a specified proportion of deposit liabilities of the bank. It may be used as a tool by the central bank to raise or decrease the money supply in the economy and affect interest rates.

The announcement noted a rise in private sector credit in September 2024, with the growth in business loans outpacing consumer lending.

"The rise in credit to businesses was fairly broad-based – manufacturing, distribution, agriculture, construction, and finance areas – while the growth in consumer financing was concentrated on durables, notably automobiles."

Relatively high domestic government financing helped to push up local treasury bill rates. This rise, combined with the policy rate cuts by the US Fed in late 2024, resulted in a narrowing of the negative TT/US interest differential on three-month treasuries by 63 basis points to negative 233 basis points in November 2024.

"In its deliberations, the Monetary Policy Committee (MPC) acknowledged the steady expansion in the world economy, albeit in an environment of significant economic policy uncertainty. Low inflation, buoyant credit conditions, ample liquidity and a continued measured expansion of non-energy output formed key components of the domestic backdrop."

However, the committee said close vigilance remained essential as developments could change rapidly.

"Taking all factors into account, the committee decided to maintain the repo rate at its current level of 3.5 per cent.

"The Central Bank will continue to monitor international and domestic developments and will take further actions as necessary. "

The next Monetary Policy Announcement is due on March 28.