Home' Trinidad and Tobago Guardian : July 27th 2014 Contents SBG6 VERBATIM
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt JULY 27 • 2014
With core infla-
sures well con-
Central Bank is
Repo rate at
2.75 per cent which remains supportive of
current economic conditions. However, as
the pace of economic activity strengthens,
the Central Bank is giving greater consider-
ation to managing inflationary expectations
in calibrating its monetary policy instruments.
As of late July 2014, signals are mixed
regarding the outlook for global growth. In
its latest World Economic Outlook (WEO)
Update, the IMF indicates that the global
recovery continues but at an uneven pace,
and that downside risks remain.
In the United States, earlier optimism
about growth prospects has moderated fol-
lowing an unanticipated sharp contraction
in the first quarter of 2014, even though a
rebound in activity is already underway.
Growth is improving for some economies
in the Euro zone, while the economic recovery
in the United Kingdom appears to be sus-
Growth in most emerging markets, includ-
ing China, remains at a slower pace than
before, partly due to softer external demand.
Although geopolitical tensions are esca-
lating in several regions around the world,
expectations of changes in monetary policy
in the major industrial economies dominate
sentiment in global financial markets.
The United Kingdom is expected to be the
first advanced economy to raise interest rates,
albeit at a moderate pace, while the US Fed-
eral Reserve is not anticipated to raise interest
rates until later in 2015.
By contrast, the European Central Bank
(ECB) recently announced a package of policy
measures to stimulate bank lending and to
address the risk of a prolonged period of low
inflation in the Euro area.
At home, the corporate sector is still cau-
tiously optimistic in its outlook for business
activity and economic strength. Results from
the Central Bank s second Business Confi-
dence Survey, conducted in the second quar-
ter of 2014 in conjunction with the Arthur
Lok Jack Graduate School of Business, showed
that almost 80 per cent of firms expect to
increase their production levels over the next
More firms were also confident that the
local economy would improve over the next
12 months than in the first survey.
On the other hand, 66 per cent of all busi-
nesses expect their financial position to improve
in the next 12 months, down from 75 per cent
of firms in the first quarter of 2014.
A recovery in business lending and steady
growth in consumer loans provide support to
the positive business sentiment. On a year-
on-year basis, private sector credit granted by
the consolidated financial system expanded
by more than 6.5 per cent in May 2014 -- the
fastest rate since February 2009.
Business lending grew for the fourth con-
secutive month, also, by around 6.5 per cent
in May 2014, from just over 3.5 per cent in
April 2014. Consumer lending remained robust,
growing at around 7.5 per cent in May 2014.
Meanwhile, the pace of real estate mortgage
loans slowed to just over 10 per cent in May
2014 from 14.5 per cent at the start of the
Core inflation remained relatively stable in
the first half of 2014. On a year-on-year basis,
core inflation stood at 2.5 per cent by the end
of June 2014.
Headline inflation slowed to 3.0 per cent
while food inflation eased for the third con-
secutive month to 3.5 per cent in June 2014.
Rising consumer demand, higher Government
spending and second-round effects from the
recent increase in cement prices could help
to accelerate inflationary pressure later in the
Excess liquidity in the banking system fell
below $5 billion in the first three weeks of July
2014. Commercial banks excess reserves
dropped to a daily average of around $5.0
billion over the period July 1---21, 2014 from
a little over $7.5 billion in June and close to
$8.5 billion in May 2014.
In June 2014, the Central Bank issued a
seven-year, 2.2 per cent coupon, liquidity ster-
ilisation Treasury bond, which removed
approximately $1.0 billion from the financial
In addition, Central Government s opera-
tions, which are usually the main source of
banking system liquidity, resulted in a net
domestic withdrawal of roughly $1.3 billion in
the first three weeks of July 2014. Further,
Central Bank s support to the foreign exchange
market in July also indirectly withdrew $1.1 billion from the system.
Interest rate differentials between TT and
US Treasury securities, though still low, have
stabilized in positive territory over the past
few months, particularly at shorter tenors.
The three-month domestic
Treasury Bill rate increased marginally to
0.13 per cent in mid-July 2014 from 0.12 per
cent at the end of June 2014. With the three-
month US Treasury Bill rate holding at 0.03
per cent, the TT-US interest differential
widened slightly to 10 basis points as at July
21, 2014 from 9 basis points at the end of June
2014. Meanwhile, despite the on-going reduc-
tion in the US Federal Reserve s quantitative
easing programme, strong external demand
has placed some downward pressure on longer
term US Treasury yields in recent months.
As such, the interest rate differential between
TT and US 10-year Treasury yields remained
in positive territory at around 14 basis points
as at July 21, 2014 from 10 basis points at the
end of June 2014.
The Central Bank will continue to closely
monitor economic conditions and is prepared
to take further action, if necessary.
The next Monetary Policy Announcement
is scheduled for September 26, 2014.
Central Bank notes recovery
in business lending, steady
growth in consumer loans
Headline inflation slowed to 3.0
per cent while food inflation eased
for the third consecutive month to
3.5 per cent in June 2014.
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