ON FRIDAY, the Central Bank will announce whether it will raise the country’s repo rate by 3.5% to address rising inflation in the economy.
In March, the interest rate setting body, the Monetary Policy Committee (MPC) opted to keep the repo rate at 3.5, the rate it has been since March 2020.
The statement noted that while higher energy prices will boost tax revenue, greater supply disruptions and higher food prices will add to imported inflation.
“The consensus view among international analysts regarding further interest rate adjustments in the United States and elsewhere was also taken into account. At the same time, the Committee took into account the first signs of an economic recovery facilitated by some credit expansion, alongside still relatively low supply-led inflation.Taking all factors into account, the MPC has agreed to keep the repo rate at 3.50%.The Central Bank will continue to carefully monitor and analyze international and domestic developments and prospects,” the March statement said.
The International Monetary Fund (IMF) predicted that there would be significant inflationary pressures around the world, with developing economies being the most vulnerable. He had forecast inflation to reach 8.7% for 2022 for developing countries, but revised the inflation projection to 11.5% after Russia invaded Ukraine.
But in recent days, central banks around the world have made adjustments to their interest rates to cope with global inflation.
Last Wednesday, the US Federal Reserve raised benchmark interest rates by 0.75%, the third time for the year so far and the largest since 1994. Switzerland and Britain raised their rate Thursday.
Central banks raise interest rates to curb rising inflation.
In an interview with the Sunday Express, Central Bank Governor Dr Alvin Hilaire said he expects the US Federal Reserve to continue raising interest rates as the price reading May 2022 consumer price index showed an increase of 8.6%, the highest rate of inflation in the world. United States since 1981.
The CBTT pursues a monetary policy focused on promoting low inflation and a stable foreign exchange market.
“The Fed’s decision to raise interest rates, given signs of inflation and a strengthening US economy, is not surprising. However, we are concerned that a rapid and sustained rise in interest rates could lead to a slowdown in the US economy which would have repercussions on the rest of the world. The current volatility in global equity markets reflects such anxiety,” Hilaire said.
He said T&T would likely be affected “given our business and financial ties with the United States and other countries.”
“External borrowing costs will increase. On the other hand, the related increase in energy prices has a positive impact on Trinidad and Tobago’s fiscal and external accounts. Many other Caribbean territories will face both higher foreign financing costs and the need to find more money to pay for imported fuel,” he said.
He noted that T&T has already started to feel the impact of global inflation on several fronts.
“Imported foodstuffs, more expensive gasoline with the drop in the subsidy and supply disruptions which impact the costs of imported construction inputs and other items,” he noted.
Last week, the Confederation of Regional Chambers of Commerce met with Hilaire to discuss, among other things, the negative impacts of global inflation and the currency shortage.
During this meeting, Hilaire noted that the continued shortage of foreign exchange is real and Hilaire pointed out to stakeholders that the Central Bank continues to pump up to US$50 million every two weeks from licensed FX brokers.
Local manufacturers have already experienced shortages of imported materials to produce their wares.
Hilaire said he was open to discussions with EximBank on whether it could extend the currencies to small and medium-sized businesses and not just manufacturers and importers of essential goods.
In a March interview with the Sunday Express, Hilaire said food prices and the cost of living were expected to rise further in the coming months.
“Higher inflation erodes purchasing power, especially of people on fixed incomes, such as pensioners or people on social benefits. Given the current domestic economic situation marked by still relatively sluggish demand, the Bank expects between half and two-thirds of external price increases to be passed on to domestic consumers this year,” he said.
His advice to the public in the coming months?
“Stay informed. The current turmoil in stock markets, fluctuating energy prices, and fears of a downturn in the United States and elsewhere are nothing new. Information helps understanding and making confident decisions.
“Stay alert. Take the opportunity to review your finances, contracts and commitments to ensure the security of your financial transactions, investments and savings. Our National Financial Literacy Program can help.
“And prioritize more. Where borrowing costs and prices of goods and services are expected to rise, seek out the best deals, expand your earning power, reduce waste and unnecessary spending, and focus your finances on the areas you value most,” did he declare.
Last week, Supermarket Association Chairman Rajiv Diptee said rising food prices were an opportunity for consumers to rethink their diets and change their diets to reduce their grocery bills .
“We have to accept the fact that at some point prices are going to adjust our tastes,” he said.
“We are going to have to change our diet. It’s something we could all look at, in terms of what we choose to consume,” Diptee said.
May Monetary Policy Report
In its monetary policy report last month, the CBTT noted that the global economic recovery is expected to slow in 2022, due to high food and energy prices due to the Russia-Ukraine crisis and food shortages. supply resulting from the Covid-19 pandemic, which have aggravated inflationary pressures in many economies.
“Rising inflation expectations have led to a normalization of policy rates in the United States and elsewhere, raising concerns about a further deceleration in growth over the medium term. Domestically, increased production of crude oil and petrochemicals spearheaded a return to positive growth in energy sector activity in the fourth quarter of 2021,” the report said.
He noted that recent high international energy prices have boosted public finances and external accounts.
“In the very uncertain global context, care must be taken not to consider this ‘windfall’ as permanent and to pursue the structural reforms essential to strengthen the competitiveness of Trinidad and Tobago,” he said.
He noted that the war-related spike in energy and other commodity prices in Ukraine is already impacting real incomes and consumption around the world.
“The war has also led to further supply shortages, especially for wheat, vegetable oils, some metals and electronic components. Meanwhile, there has been enormous volatility in financial markets, with stock prices fluctuating based on news surrounding the war, the projected path of interest rates, and fears that excessive monetary tightening could lead to recessions. At the same time, growing Covid-19 inflections and associated lockdowns in China and elsewhere not only threaten to add to existing supply constraints, but provide a sobering indication that the pandemic has yet to follow. its full course,” he said.