Mar 2016 Financial News

Central Bank: TT dollar depreciates by three per cent

Mar 25, 2016

Although Value Added Tax (VAT) was reduced to 12.5 per cent from 15 per cent on February 1, the widening of the range of items subject to the sales tax contributed to an increase in food prices. In its latest monetary policy announcement yesterday, the Central Bank said on a year-on-year basis, headline inflation measured 3.4 per cent last month compared to 2.4 per cent the previous month, and 6.2 per cent in February 2015. However, the bank said, “headline inflation remained well contained by historical standards.”

The Central Bank reported: “On a year-on-year basis, food inflation measured 9.4 per cent when compared to 4.5 per cent in January 2016. On the other hand, core inflation was relatively unchanged, measuring 2.1 per cent in February 2016, when compared with 2.0 per cent in the previous month.

“Relatedly, reflective of supply and demand conditions in the foreign exchange market, the TT dollar exchange rate against the US dollar depreciated by roughly 3.0 per cent over the three-month period January—March 21, 2016. Based on historical patterns ‘pass through’ effects to domestic prices could take about two to three months.”

According to the bank, T&T continues to face economic challenges due to lower energy prices, operational issues and maintenance-related activities in the domestic energy sector. The energy sector contracted by around 5.0 per cent (year-on-year) in the fourth quarter of 2015 and there was “anaemic activity” in the non-energy sector.

“Early indications for 2016, including a slowdown in new car sales and cement, are that the lull in economic activity may have continued into the new year,” the Central Bank said.

Liquidity in the domestic banking system was at relatively comfortable levels over the first three months of the year. Commercial banks’ excess reserves at the Central Bank averaged $3.8 billion daily in January and February, rising to just over $4 billion in the first half of this month.

The Central Bank said it used its various instruments to manage banking sector liquidity. Over the period January to mid-March, the bank withdrew roughly $1.5 billion via net open market operations, and rolled over a commercial bank fixed deposit valued at $1.5 billion on March 14.

“Since the last monetary policy announcement at the end of January 2016, TT-US interest rate differentials have been broadly favourable. The differential on the 91-day Treasury securities stood at 86 basis points as at March 15, 2016, from the 67 basis points at the end of January 2016. On the other hand, the differential on the 10-year Treasuries held steady at 197 basis points, from the 196 basis points over the same period,” the bank said.

“On the global front, at its March 2016 Federal Open Market Committee (FOMC) meeting, the US Federal Reserve (Fed) decided to keep policy rates unchanged for the second consecutive occasion. Moreover, citing the challenges to the US economy from weaker global economic growth and international financial market volatility, the Fed lowered its expectations for the frequency of future policy rate increases.

“This decision was in line with its central banking counterparts in Europe and Japan. Specifically, the European Central Bank lowered its policy rate to zero per cent in March 2016, while the Bank of Japan introduced negative interest rates in January 2016.” Citing “somewhat tepid domestic economic activity, low inflation and slow global growth”, the Central Bank’s Monetary Policy Committee decided to maintain the repo rate at 4.75 per cent. The bank said it will continue to carefully analyse domestic and international economic developments in its deliberations and decisions.

Source:
Trinidad Guardian
Friday March 25, 2016

http://www.guardian.co.tt/business/2016-03-25/central-bank-tt-dollar-depreciates-three-cent