Home' Trinidad and Tobago Guardian : March 12th 2015 Contents MARCH 2015 • WEEK TWO www.guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG3
Chief editor-business: ANTHONY WILSON
Editing and design: NATASHA SAIDWAN
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In his controversial speech to the
Chaguanas Chamber of Com-
merce on December 1, Central
Bank Governor Jwala Rambarran
said it was the institution's plan
to ensure it does not deplete T&T's
foreign exchange reserves, as was
done in the late 1980s, "because
it took us 30 years to finally reach to today's
In that speech, Mr Rambarran confirmed
a query, in this space the week before, that
T&T's US$11 billion in reserves at the end
of November 2014 did include US$1.175 bil-
lion proceeds from the sale of Clico's 56.53
per cent stake in Methanol Holding
Without the MHTL proceeds, therefore,
T&T's foreign reserves at the end of Novem-
ber 2014 totaled US$9.825 billion.
Governor Rambarran made the point that
T&T had just over one year's worth of official
reserves, which means that if he "took all
the official reserves and gave it to the busi-
ness community, you would actually be able
to buy everything you need for a year. Is
The governor then said: "Should I keep
using the country's official reserves to ensure
every commercial activity that demands
foreign exchange gets it from Central Bank?
"I will not be the Governor who ran down
the country's reserves to make everyone
happy. I prefer to continue to be the Gov-
ernor, who all armchair economists say dis-
rupted the foreign exchange market, because
of improvements I know will benefit you
and the entire country in the long run, than
the one who tried to get everyone to like
him and make friends by playing loose and
fast with the country's foreign exchange
In that speech, therefore, T&T's Central
Bank Governor made a commitment or gave
an assurance that he would not run down
or play fast and loose with the country's
In a February 27, 2014 statement, the
Central Bank noted that its sales of foreign
exchange to the banking system in the first
two months of 2013 amounted to US$240
In a February 21, 2014 statement, the
Central Bank said that for the first two
months of last year, it sold US$300 million
to the banking system: US$160 million in
January and US$140 million in February.
In a statement issued on January 28, 2015,
the Central Bank said that it sold "US$400
million to the banking system for the month
of January, which was the largest foreign
exchange intervention made by the Central
Bank in a single month to date."
And in a March 2 news release---which is
not on the institution's Web site---the Central
Bank indicated it sold US$250 million to
banking system in February.
That means for the first two months of
this year, the Central Bank sold US$650
million to the banking system.
The statistics indicate that the Central
Bank's sale of US$650 million in foreign
exchange in January and February 2015 was
more than double the sale of US$300 million
in the comparable period in 2014.
And it means that the sale of US dollars
by the Central Bank to the local banking
system in 2015 was greater than in 2013 by
a factor of 2.7 times, as indicated in the box
What has happened in the T&T economy
that justifies the Central Bank doubling its
sale of foreign exchange, especially given
the fact that the institution has said on a
number of occasions that it is only respon-
sible for 25 per cent of this country's supply
of foreign exchange?
What's more, if the Central Bank sold
US$650 million to the banking system in
January and February 2015, a total of 59
days, that means the average daily sales by
the bank for 2015 would be US$11 million,
which is US$650 million/59 days.
Extrapolating the Central Bank's average
daily sales of foreign exchange for the first
59 days of 2015 to a year could mean that
the Central Bank could end up selling
US$4.015 billion (365 days X US$11 million)
to the banking system by the end of 2015.
That, of course, depends on the pace of
demand for foreign exchange in T&T con-
tinuing at current levels and the Central
Bank's willingness to continue meeting that
Is the estimated sale of over US$4 billion
by the Central Bank in 2015 sustainable and
what impact would that possibility have on
T&T's net official reserves?
An important aspect of that question is
that T&T's energy taxes are normally paid
in the following quarter.
So the energy companies would pay taxes
for the October 1 to December 31 2014 quar-
ter in the January 1 to March 31 quarter.
• Continued on Page 7
Does CBTT care more about
T&T's imports than its reserves?
US$130mn US$160mn US$400mn
US$110mn US$140mn US$250mn
US$240mn US$300mn US$650mn
Source: Central Bank statements
Last week Thursday, the Business
Guardian asked Finance Minister
Larry Howai the following question:
Given the fact that energy-producing countries
from Norway to Canada to Mexico to Nigeria
have allowed their currencies to depreciate, do
you think the Central Bank's "more proactive
stance" to address the foreign exchange de-
mands of mainly distributors and retailers is ap-
propriate policy at this time?
The question is being asked in the context of
the fact that demand for US dollars is growing
faster than the economy and also the four per
cent decline in net official reserves between the
end of December and the end of February.
On Saturday, the minister
responded as follows:
The question is probably best addressed by
the Central Bank which has a critical role in for-
eign exchange policy rather than by me as I
would like to avoid seeming to politicise the
management of foreign exchange but I shall re-
spond based on your request. I presume you
would have also requested a statement from the
Kindly note that during the course of last year,
we established a joint team with the CBTT to
monitor the foreign exchange situation and
make recommendations to address the effect of
reduced flows on the economy and the market.
I would like to begin by reiterating the state-
ment by the Central Bank Governor who has
publicly stated on several occasions that the
country's foreign exchange reserves---which took
the last decade to be built up---will not be wan-
tonly run down. The Central Bank prudently
manages the foreign exchange reserves and will
continue to do so.
There will always be fluctuations in the level of
foreign exchange reserves due to changes in a
variety of conditions. These include changes in
the volume of energy exports, changes in the
prices of energy commodities, level of govern-
ment debt payments, and the volume of foreign
exchange interventions by the Central Bank.
In any market, including the foreign exchange
market, demand has to be considered in the con-
text of supply.
It is a structural feature of the TT economy
that demand for foreign exchange comes from
the non-energy sector, while the supply comes
from the energy sector Continued on Page 7
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