Business loans accelerating, says Central Bank

The Cen­tral Bank of T&T on Christ­mas Eve not­ed that the mo­men­tum of pri­vate sec­tor cred­it ac­cel­er­at­ed in Sep­tem­ber 2024, with the growth in busi­ness loans out­pac­ing con­sumer lend­ing.

In its mon­e­tary pol­i­cy an­nounce­ment for the fi­nal quar­ter of 2024, the Cen­tral Bank’s mon­e­tary pol­i­cy com­mit­tee (MPC) said the rise in cred­it to busi­ness­es was fair­ly broad based (man­u­fac­tur­ing, dis­tri­b­u­tion, agri­cul­ture, con­struc­tion, and fi­nance ar­eas) while the growth in con­sumer fi­nanc­ing was con­cen­trat­ed on durables, no­tably au­to­mo­biles.

Fi­nan­cial sys­tem liq­uid­i­ty was quite com­fort­able through­out the sec­ond half of 2024, fol­low­ing the re­duc­tion of the re­serve re­quire­ment in Ju­ly from 14 to 10 per cent of ap­plic­a­ble de­posits, ac­cord­ing to the MPC. Com­mer­cial banks’ ex­cess re­serves at the Cen­tral Bank av­er­aged $6.4 bil­lion in the first two weeks of De­cem­ber.

De­spite the rise in cred­it to busi­ness­es and con­sumers and the “quite com­fort­able” fi­nan­cial sys­tem liq­uid­i­ty, head­line in­fla­tion in T&T re­mained very low, and was record­ed at 0.5 per cent in No­vem­ber, up from 0.2 per cent in the pre­vi­ous month. Core in­fla­tion, which ex­cludes food prices, was un­changed at -0.3 per cent, while food in­fla­tion rose to 3.1 per cent from 2.4 per cent over the two-month pe­ri­od, said the com­mit­tee.

Rel­a­tive­ly high do­mes­tic Gov­ern­ment fi­nanc­ing helped to push up lo­cal trea­sury bill rates. Com­bined with the pol­i­cy rate cuts by the US Fed in late 2024, this re­sult­ed in a nar­row­ing of the (neg­a­tive) TT/US in­ter­est dif­fer­en­tial on three-month trea­suries by 63 ba­sis points to -233 ba­sis points in No­vem­ber 2024.

The MPC said da­ta from Cen­tral Sta­tis­ti­cal Of­fice (CSO) showed that re­al GDP ex­pand­ed by 1.5 per cent (year-on-year) dur­ing the first quar­ter of 2024. This re­flect­ed a re­silient non-en­er­gy sec­tor, along­side a mar­gin­al rise in en­er­gy sec­tor out­put.

Ac­cord­ing to sub­se­quent in­di­ca­tors mon­i­tored by the Cen­tral Bank, con­straints in nat­ur­al gas avail­abil­i­ty neg­a­tive­ly af­fect­ed the en­er­gy sec­tor dur­ing the sec­ond and third quar­ters. At the same time, non-en­er­gy pro­duc­tion ap­peared to have strength­ened, no­tably in the trade, trans­porta­tion and stor­age and con­struc­tion sub-sec­tors, said the MPC.

Mean­while, the un­em­ploy­ment rate mea­sured 4.8 per cent in the sec­ond quar­ter of 2024 com­pared with 5.1 per cent one quar­ter ear­li­er and 3.7 per cent in the cor­re­spond­ing quar­ter one year ear­li­er.

The Cen­tral Bank not­ed that glob­al eco­nom­ic growth re­mained sta­ble in 2024 de­spite on­go­ing geopo­lit­i­cal con­flicts in East­ern Eu­rope and the Mid­dle East.

The In­ter­na­tion­al Mon­e­tary Fund in its Oc­to­ber 2024 World Eco­nom­ic Out­look fore­casts glob­al ac­tiv­i­ty to ex­pand by 3.2 per cent in 2024, slight­ly low­er than the 3.3 per cent reg­is­tered in 2023.

Gen­er­al progress to­ward in­fla­tion tar­gets al­lowed ma­jor cen­tral banks to ini­ti­ate mon­e­tary pol­i­cy eas­ing dur­ing the sec­ond half of 2024. In De­cem­ber, the Unit­ed States Fed­er­al Re­serve (US Fed) re­duced its tar­get range for the fed­er­al funds rate by 25 ba­sis points from 4.25 to 4.50 per cent – its third rate cut for the year.

“In its de­lib­er­a­tions, the MPC ac­knowl­edged the steady ex­pan­sion in the world econ­o­my, al­beit in an en­vi­ron­ment of sig­nif­i­cant eco­nom­ic pol­i­cy un­cer­tain­ty. Low in­fla­tion, buoy­ant cred­it con­di­tions, am­ple liq­uid­i­ty and a con­tin­ued mea­sured ex­pan­sion of nonen­er­gy out­put formed key com­po­nents of the do­mes­tic back­drop, said the MPC.

“The MPC recog­nised, how­ev­er, that close vig­i­lance re­mained es­sen­tial as de­vel­op­ments could change rapid­ly. Tak­ing all fac­tors in­to ac­count, the Com­mit­tee de­cid­ed to main­tain the re­po rate at its cur­rent lev­el of 3.50 per cent. The Cen­tral Bank will con­tin­ue to mon­i­tor in­ter­na­tion­al and do­mes­tic de­vel­op­ments and will take fur­ther ac­tions as nec­es­sary,” the in­sti­tu­tion stat­ed.

De­cem­ber’s mon­e­tary pol­i­cy an­nounce­ment was the 19th con­sec­u­tive quar­ter the MPC main­tained the re­po rate at its cur­rent 3.50 per cent lev­el. The last time the rate moved was on March 17, 2020, as the Cen­tral Bank strove to ease mon­e­tary con­di­tions by sig­nalling low­er in­ter­est rates, fol­low­ing the start of the COVID-19 pan­dem­ic.

The next mon­e­tary pol­i­cy an­nounce­ment is sched­uled for March 28, 2025.