Energy exploration up, construction contracts

The Central Bank in a release reported that the MPC at its May meeting “assessed the evolving situation in the domestic economy.” Oil production in the first quarter of 2017 was higher than over the previous three quarters, albeit 1.6 per cent lower than in the first quarter of 2016, the MPC reported.

“There was also evidence of a pick-up in energy exploration activity which is expected to bolster output in the short to medium term.

Meanwhile, natural gas production has yet to recover, with output in January to March recorded at 8.4 per cent lower than the year-earlier period.

Other available non-energy statistics suggest that construction and distribution activities were very subdued in early 2017.” The MPC reported that inflation has remained low: the 12-month headline rate in March was 2.8 per cent, up from 2.6 per cent in the previous month and close to the 3.0 per cent averaged over the past 6 months.

Core inflation was 2.6 per cent (year-on-year) in March. The weak inflationary pressures were also reflected in the indices of producer prices and building material prices (an increase of 2.8 per cent and a decline of 0.6 per cent on a 12-month basis respectively, in March).

The liquidity situation of the financial sector was relatively comfortable, the MPC stated. Commercial banks’ excess reserves at the Central Bank averaged $3,441 million in April and have hovered around this level for much of May. Credit growth, however, has continued to slow. Credit granted by the consolidated financial system to the private sector grew by 2.6 percent (year-onyear) in March compared with 3.2 per cent a month earlier, with loans to businesses actually declining by 0.7 per cent in the year to March.

In its deliberations, the MPC noted that the domestic economy continued to need support toward recovery, and that the risk of overheating did not appear imminent in light of the recent information on inflation.

At the same time, the narrowing of interest differentials between Trinidad and Tobago and the US has implications for the balance of payments.

“In light of these factors, the MPC decided to maintain the repo rate at 4.75 per cent. The bank will continue to carefully monitor and analyse international and domestic developments in its deliberations.” The MPC also examined the backdrop of recent international economic developments, notably the growing optimism on global growth alongside the prospects for rising interest rates.

The International Monetary Fund recently revised upward its forecast for global growth from 3.4 to 3.5 per cent, while cautioning that downside risks were elevated in an atmosphere of economic policy uncertainty and geopolitical tensions, the MPC noted.

Latest data show that the United States is on course for a solid economic performance in 2017, inflation was above the Federal Reserve’s (Fed) target of two per cent and labour market conditions have firmed, the MPC reported.

“As a result, the Fed is likely to continue its cycle of interest rate increases in the near-term.

In this context, the MPC noted that the upward movement international interest rates had not been matched by a commensurate movement in domestic rates - for example, the differential between the Trinidad and Tobago and US short-term (three month) treasury instruments narrowed to 29 basis points in mid-May compared with 43 basis points at end-March 2017.”