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SUNDAY BUSINESS GUARDIAN www.guardian.co.tt JUNE 1 • 2014
On Thursday, in its Monetary Policy
Announcement, the Central Bank noted that
inflation had slowed in April and that business
lending had increased for the first time in a
year. Following is the announcement in its
entirety:In the context of a more favourable domestic economic
outlook and subdued core inflation, the Central Bank
has decided to intensify open market operations in
order to absorb excess liquidity in the banking system
in the period ahead, while holding the "Repo" rate at
2.75 per cent.
Heading into mid-2014, global financial tensions have eased,
but the world economic recovery appears to be subdued. Eco-
nomic performance in the United States was weaker than
expected in the first quarter of 2014, while there was growth
in the United Kingdom, Europe and Japan. Growth is slowing
in the larger emerging market economies, especially China,
which is likely to pose a drag on the global recovery. The Rus-
sia-Ukraine conflict, which started early this year, has added
a new dimension of uncertainty to global economic prospects,
even though to date contagion effects have been limited to
those countries with direct trade and financial links to the
Eastern European region.
Of the central banks in the advanced economies, only the
United States Federal Reserve has started the process of scaling
back its unconventional, expansionary monetary policy which
has been in place over the past few years. The European Central
Bank, on the other hand, indicated that concerns regarding
low inflation and risks to economic growth may lead it to
undertake further monetary easing. In some emerging
economies, concerns about the impact of US quantitative
easing have resulted in central banks increasing their key policy
After growing at a slightly faster-than-expected pace in
2013, economic performance was mixed in the first three
months of 2014.
While the non-energy sector maintained its growth momen-
tum into 2014, the rebound in the energy sector in the fourth
quarter of 2013 did not fully carry over into early 2014.
Borrowing by businesses also encouragingly picked during
the first quarter of 2014 from a year-long decline. Core inflation
remained low and stable in April 2014.
Nevertheless, with strengthening economic activity and
increasing consumption, inflationary pressures are likely to
build in the coming year.
Two events temporarily affected energy production in the
first two months of 2014. BPTT took down its Savonette Plat-
form to accommodate drilling at another well and Petrotrin
undertook planned maintenance at its Pointe-a-Pierre oil
refinery. However, energy output bounced back by March
As a result, natural gas output fell 2 ½ per cent (year-on-
year) during the first quarter of 2014 while crude oil output
slipped by just over 2 ½ per cent over the same period.
Meanwhile, both methanol and fertiliser experienced higher
production in the first quarter of 2014. Initial indicators
suggest a favorable outturn in the non-energy sector in the
first three months of 2014.
Local sales of cement increased by around 7 ½ per cent
and new car sales rose by more than 12 ½ per cent in the
first quarter of 2014, suggesting that the construction and
distribution sectors maintained their growth momentum.
Private sector credit growth has strengthened and became
more balanced so far in 2014. On a year-on-year basis, private
sector credit granted by the consolidated financial system
grew by almost 6.0 per cent in March 2014, up from an
increase of 2 ½ per cent one year earlier.
Notably, as a sign of improving corporate activity, business
lending emerged from a year-long decline, posting growth
of a little over 2.0 per cent in February 2014 and increasing
further by close to 3 ½ per cent in March 2014.
Consumer loans maintained a relatively robust rate of
expansion, growing by nearly 6.0 per cent in March 2014.
Consumer lending was driven by motor vehicle loans and
loans for home renovations, while there was a pick-up in
outstanding credit card balances. Real estate mortgage lending
continued to post double-digit growth rates in February and
Following the Gazetting of Parliament s approval of increased
borrowing limits under the Treasury Bills and Treasury Notes
Acts, the Central Bank expanded its open market operations
to remove excess liquidity in April 2014.
Central Bank s net open market operations withdrew approx-
imately $1.2 billion from the banking system in April 2014.
As a result, commercial banks excess reserves fell to a daily
average of $6.3 billion in April 2014 from $7.2 billion in March
2014. However, the maturity of a $1 billion Central Government
bond at the end of April 2014 pushed liquidity levels higher.
Subsequently, in the period May 1---27, 2014, commercial
banks excess reserves rose to a daily average of $8.4 billion.
In the period January---May 27, 2014, purchases from the
public by authorised dealers amounted to US$2,152 million,
while sales to the public totalled $2,615 million. The shortfall
of US$463 million was completely off-set by Central Bank s
sales to authorized dealers of US$610 million in the first five
months of 2014.
With the expansion in the Central Bank s open market oper-
ations in April 2014, short-term Treasury rates have picked
up. The three-month Treasury bill rate rose to 0.14 per cent
in May 2014 from 0.06 per cent in April 2014. Hence, the TT-
US interest differential on three-month Treasury bills widened
to 11 basis points in May 2014 from 3 basis points at the end
of April 2014.
Meanwhile, weak economic data in the US for the first quarter
of 2014 and investors returning to safe haven assets in the
wake of the geopolitical tensions in Ukraine pushed longer
term US Treasury yields downwards.
As a result, the interest rate differential between the TT and
US 10-year Treasury yields moved into positive territory (roughly
11 basis points as at May 27) for the first time since mid-2013.
Headline inflation has been relatively subdued in the first
four months of 2014.
The latest available data from the Central Statistical Office
indicate that on a year-on-year basis headline inflation slowed
to 3.3 per cent in April 2014. Following an up-tick in March
2014 to 2.7 per cent, core inflation slowed slightly to 2.6 per
cent in April 2014, but was still higher than the 2.0 per cent
recorded at the end of 2013.
Food inflation continued to slow, measuring 4.1 per cent in
April 2014 compared with 6.7 per cent and 10.2 per cent in
March 2014 and December 2013, respectively.
The Central Bank will continue to monitor economic devel-
opments and will make any further adjustments to monetary
policy, as necessary.
The next Monetary Policy Announcement is scheduled
for July 25, 2014
Central Bank increases absorption
to deal with greater liquidity
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