Macroeconomic outlook strong

“GOVERNOR of the Central Bank, Ewart Williams,” yesterday said that despite the many social ills plaguing society, the macroeconomic fundamentals remain sound and these justify the present exchange rate stability. Williams made this known while delivering the keynote address at a business luncheon hosted by the South Trinidad Chamber of Industry and Commerce and held at Soong’s Great Wall, Circular Road, San Fernando. Among the macroeconomic fundamentals, Williams said were, record oil prices, expansion in output of natural gas and petrochemicals, small surplus registered by the National Budget, declining external debt and a significant positive interest rate differential between TT and the US.

Speaking to a packed audience comprising businessmen and finance experts, Williams stated the Central Bank was committed to a flexible exchange rate policy. “We will not resist a depreciation if this is needed to protect the balance of payments or because of changing fundamentals,” Williams said. According to the Central Bank Governor, this country because of its typical commodity-based economy, possessed an inherent vulnerability to “Dutch disease” whereby the equilibrium exchange rate in the commodity oil sector tends to be too high and inconsistent with the development and expansion of the non-energy sector.

“For this reason, the flexible exchange regime is in principle, well suited to our circumstances, as it facilitates automatic adjustment to external stocks.” Williams added that exchange rate stability was critical in economic planning and against that background, the bank’s exchange rate policy was conditioned by several factors. “The need to maintain an exchange rate that promotes competitiveness in the non-oil sector and the need to maintain a level of reserves of around six to six and a half months of imports,” are some of the factors. Although fundamentals were sound, Williams attributed the lumpy size and timing of foreign exchange inflows as against even distribution throughout the year, as one of the root causes of creating pressures in the market.