Central Bank keeps repo rate at 3.5 per cent

THE CENTRAL Bank has opted to maintain its repo rate at 3.50 per cent, citing global economic uncertainties and the need to safeguard against potential inflationary pressures.

The decision was made during the bank's latest monetary policy review, which reflected a complex international landscape, including trade tensions.

The bank, citing the International Monetary Fund (IMF), said world economic growth for 2025 is projected to hold steady at 3.3 per cent, "but with large downside risks."

The IMF’s forecast of global inflation at 4.2 per cent in 2025, compared with 5.7 per cent in 2024, also appears optimistic given present trade tensions.

These concerns are driven largely by the ongoing threat of tariff wars, which could disrupt global trade flows and exert upward pressure on inflation.

While many global central banks have either cut or held their policy rates in response to these challenges, the Central Bank of Trinidad and Tobago has chosen a more cautious approach, given the domestic economic conditions.

Despite international interest rates fluctuating, local rates have remained largely unchanged, with the three-month treasury yield differential between TT and the US settling at -201 basis points as of February 2025.

"Locally, inflationary pressures remain well-contained, with the consumer price index (CPI) increasing slightly to 0.7 per cent year-on-year in February 2025, up from 0.5 per cent in December 2024," the monetary policy noted.

However, core inflation, excluding volatile food prices, saw a small decline of 0.1 per cent.

On the other hand, food prices rose by 3.9 per cent, partly driven by domestic factors and higher international commodity prices.

This uptick in food costs is expected to continue influencing consumer spending in the short term.

Despite these inflationary headwinds, the domestic economy has shown mixed growth performance, the bank said.

"While the energy sector has faced challenges, including a decline in crude oil and natural gas production, there has been an uptick in petrochemical output, with ammonia and methanol production rising by 16.1 per cent and 1.1 per cent, respectively."

Non-energy sectors, particularly manufacturing and finance, have also shown resilience, though sectors like construction and accommodation services have struggled.

Indicators for 2025, including consumer spending and business activity, suggest some degree of buoyancy in the non-energy economy.

The financial system remains robust in terms of liquidity, with commercial banks reporting a steady increase in excess reserves, reaching $7.2 billion in March 2025.

This ample liquidity has allowed banks to continue expanding their credit offerings, with private sector credit rising by 8.4 per cent year-on-year in January 2025.

Consumer loans, in particular, saw a considerable 11.6 per cent increase.

The Central Bank's Monetary Policy Committee stressed the importance of monitoring global economic developments, including trade policy shifts and inflation risks, while also keeping an eye on domestic credit quality as lending levels rise.

The committee’s decision to maintain the repo rate reflects a balanced approach, aiming to support economic growth while being vigilant against inflationary pressures.

The next monetary policy update is scheduled for June 27.