Trinidad and Tobago's central bank held its benchmark repo rate steady at 2.75 percent as inflationary pressures are well contained and private sector investment remains subdued.
The Central Bank of Trinidad and Tobago, which trimmed rates by 25 basis points in 2012, said the economic recovery was still dependent on the slow but steady performance of the non-energy sector as significant downside risks stem from the energy sector.
"Business lending, however, contracted for the sixth consecutive month in May 2013, suggesting that the low interest rate environment is yet to encourage a strong revival in private sector investment," the central bank said.
The domestic economy expanded by an annual 1.6 percent in the first quarter, the third consecutive quarter of growth, driven by a 2.5 percent rise in the non-energy sector while the energy sector only rose by 0.5 percent due to supply constraints from maintenance and security upgrades at energy companies. Works planned for September continue to weigh on economic recovery for this year.
In May, the central bank said it was forecasting growth this year of 2.5 percent, up from 0.2 percent in 2012, based on a rebound in natural gas production.
Despite low interest rates, the central bank said growth in private sector credit grew by an annual 3 percent in May from 2 percent in December though consumer lending had picked up in recent months.
But business lending contracted by over 5 percent in May, the sixth consecutive monthly drop.
Liquidity in the financial system is still elevated but a $1 billion central government bond from May, along with tax payments in late June and July, had helped remove some excess liquidity.
To further contain liquidity, the central bank said it had opened for auction another central government bond, to be issued on August 6, whose proceeds would be sterilized and thus withdraw some $1 billion from the banking system.
Headline inflation accelerated in June to 6.8 percent from 5.6 percent in May while core inflation, which excludes food, slowed to 2.2 percent in June from 24 percent.
The recent rise in global yields following news that the U.S. Federal Reserve may reduce monetary stimulus, is "expected to influence the trajectory of rates in Trinidad and Tobago given the country's open capital account," the bank said, adding that it would keep an eye on monetary conditions, "including those related to the tapering off of quantitative easing in the United States."
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