Trinidad & Tobago holds rate, liquidity up after March cut

      Trinidad and Tobago’s central bank left its benchmark repo rate steady at 3.50 percent, saying its “unprecedented” rate cut in March had boosted liquidity in the domestic financial system substantially and it expects this will have a stronger effect on credit as the economy opens up.
      The Central Bank of Trinidad and Tobago (CBTT) said its 150-basis-point rate cut in March, along with a 300 point cut in banks’ reserve requirement, had led to an almost immediate reduction in banks’ prime lending rates to 7.50 percent from 9.25 percent.
      On March 17 the bank’s monetary policy committee decided to slash the rate and lower the reserve requirement at a special meeting in light of the “unprecedented nature and magnitude of the pandemic, exacerbated by the energy price drop.”
      Since this monetary easing, liquidity in the financial system has surged, with excess reserves at CBTT reaching over TT$110 billion by mid-June but there still hasn’t been a significant pickup in private sector credit as businesses are still waiting for a recovery in demand, the bank said.
      But based on history, the central bank expects the impact of its rate cut to take several months to fully filter into interest rates and credit.
      Meanwhile, it said economic activity in Trinidad and Tobago is gradually resuming following several months of lockdown to prevent the spread of the Covid-19 pandemic.
      Noting the rise in liquidity, the central bank said it decided to maintain its repo rate today and was continuing to monitor developments and “will take further action as necessary.”
      Latest data show lending to businesses had declined 5.7 percent year-on-year in March, reflecting a pre-pandemic trend, but despite the gloomy environment, the country’s international reserves remained steady at US$6.8 billion on June 19 – around 8 months of imports – and lower interest rates in the U.S. had improved the TT-US rate differential to 81 basis points on 3-month Treasuries.
      But CBTT said the situation and outlook on the international front “warrant concern,” and the macroeconomic environment can best be described as “intense and uncertain,” constrained for the most part by the fiscal space available to governments.
      Inflation in Trinidad and Tobago rose to 0.5 percent in February from 0.4 percent in January.

   
   
     The Central Bank of Trinidad and Tobago released the following statement: