T&T
economy: Facing
global challenges
TG/Angelo
Marcelle
Central
Bank Governor Ewart Williams
Port Spain
Petroleumworldtt.com 11
18 07
Central
Bank Governor Ewart Williams has warned that
continued hikes in the price of oil and further
depreciation of the US dollar will place added
pressure on prices in T&T.
He
said there were other factors exerting upward
pressure on inflation: among these the increase
in food prices, which he said was an international
problem and the credit crunch and economic slowdown
expected to affect the world economy as the result
of the subprime mortgage crisis in the US.
Williams
said there had been an unprecedented increase
in food prices worldwide due to poor weather
conditions, strong demands on world food supplies
from China and India and the diversion of agricultural
supply of key commodities to biofuels.
He
cited the prices of dairy products—such
as skim milk and butter—which he said had
risen by more than 125 per cent in the 12 months
up to September 2007.
“If
the US dollar continues to depreciate as it is
doing now, that will continue to put upward pressure
on prices. If the oil price continues and goes
to US$100—whilst it will help us on the
side of export receipts and government revenues—it
will be putting added pressure on the global
inflation situation. So we will be taking on
one side and losing on the other.”
He
made these comments on Monday as he launched
the October 2007 Monetary Policy Report at the
auditorium lounge of the Central Bank, Eric Williams
Financial Complex, Independence Square, Port-of-Spain.
He
was making the point that the international economic
environment was not favourable to the management
of inflation. Indeed, he said control of inflation
was now on the agenda of “an increasing
number of developed and developing countries.”
Williams
added that, “A more benign international
environment will help in achieving stated (inflation)
targets.”
On
the weakening US dollar, he said with the US
dollar depreciating against the pound sterling
and the euro, Trinidadians need to pay more for
pounds and euros.
“Consumers
who have payments in pounds or in euros are hurting
to the extent that they now need to find more
TT dollars. Our import structure is very dependent
on the US. About 40 per cent of our imports come
from the US, but I think about 10.0 or 15 per
cent comes from a combination of the euro and
the pound. So it means that 10.0 or 15 per cent
of our imports are affected by the depreciation
of the TT dollar vis-a-vis the pound and the
euro.”
Williams
said the weakening of the US dollar was a problem
for all countries whose currencies are pegged
to the US dollar because they are facing a “serious
depreciation of their currencies against all
non-US currencies.”
Despite
this he said increasing the value of the TT dollar
was not advisable.
Williams
said the long-term objective of the country’s
economic policy is economic diversification:
creating goods and services for export which
are not based on energy. He said revaluing the
TT dollar would achieve exactly the opposite
of the desired objective.
“What
we should do is to allow the TT dollar to depreciate
so that these exports are able to find markets
abroad. That’s one thing. It is particularly
important now because of domestic inflation.
Domestic inflation is undermining competitiveness.
“In
addition, the non-energy sector would need to
meet higher costs out there...I think it would
be exactly the wrong thing to do to be appreciating
the exchange rate.”
He
admitted that revaluing the TT dollar might help
some sectors of the economy; importers, for instance,
would find their products would be cheaper. However,
he said he was not sure to what extent increasing
the value of the TT dollar would assist in the
fight against inflation.
Focus on economic diversification
“ I think that what is likely to happen is you would make a small change
in the exchange rate—a small appreciation—and nothing would happen.”
Williams
said the answer to controlling inflation is to
identify and deal with the main causes of inflation
in the country.
He
said these were shortages of agricultural supplies
and excessive domestic demand.
“You
deal with agricultural supply. The Government
is putting measures in place to deal with that.
We hope they have a quick pay off.
“And
you deal with this demand element. Credit creation
and government expenditure.”
The
Government has set itself a target of reducing
inflation to 7.0 per cent this year and to 5.0
per cent next year.
Responding
to a question about accountability for achieving
these targets, Williams said having the right
conditions for achieving the targets is as important
as setting the inflation targets.
He
said, for one thing, it requires that fiscal
imbalances are corrected.
In
T&T’s case he said this had to do with
the imbalance in the non-energy fiscal deficit.
He said it also implied the existence of a stable
basket of goods. However, Williams said T&T
has a basket of goods in which the agricultural
prices “display a kind of volatility that
is incredible.”
He
said there are so many factors that on a monthly
basis affect what the increase in agricultural
prices would be.
“You
cannot have an inflation targetting system where
there is so much volatility in a significant
part of the inflation basket. So we will have
to get the conditions right. The conditions also
include a tremendous amount of research that
could spell out clearly the transmission mechanism
where we know what happens when we increase interest
rates and we know what happens down the chain
to bank credit and from bank credit to inflation.”
He
added that, “Inflation targetting doesn’t
work well in developing countries where the preconditions
do not exist. We are now trying to put those
preconditions in place.”
In
spite of that, Williams said he was confident
the Government’s inflation targets could
be met.
$6.7
billion lent in real estate mortgages
Local
financial institutions lent close to $6.8 billion
($6,799 million) over the past year for real
estate mortgages.
According
to the October 2007 Monetary Policy Report, the
figure represented a 16.9 per cent increase over
the period, “reflecting an upsurge in the
number and size of new real estate mortgage approvals.” The
increase for the corresponding period in 2006
was 13.6 per cent.
The
report said the upward trend in the number and
size of new real estate mortgage approvals has
been maintained.
The
report also said that while evidence supported
claims that mortgage interest rates of commercial
banks have begun to rise, “Nevertheless,
the majority of new real estate mortgage loans
remained in the 8.10 to 9.00 per cent range.”
A
greater percentage of applicants were able to
access real estate mortgages between the 7.1
to 9.0 per cent range, this year than last.
Education
costs post biggest inflation rise
URVASHI
ROOPNARINE TIWARI
The
cost of education has increased a considerable
11.5 per cent since last year, the biggest rise
of several sectors, excluding food, monitored
by the Central Bank of T&T.
This
was one of the observations to surface in the
bank’s Monetary Policy Report launched
at the Eric Williams Financial Complex, Independence
Square, Port-of-Spain, on Monday.
The
report said the increase was largely due to increasing
tuition fees caused by the loss in value of the
TT dollar which is weakening along with the US
dollar in relation to other currencies.
The
TT dollar is “pegged” to the US dollar
which has been declining in value over the past
few months against currencies such as the pound
and the euro. This means that tuition fees payable
in pounds and euros will be higher.
Bank
governor Ewart Williams said, “It’s
no doubt that education and tuition fees are
being affected by the depreciation of the US
dollar.
“Payments
for goods and services out of the UK have increased
as we now need to find more TT dollars to make
payments in the pound and euro.”
He
explained that since the TT dollar was pegged
to the US, the depreciation of the US dollar
resulted in consumers having to pay more for
the desired currencies.
“While
40 per cent of imports come from the US, 10 to
15 per cent come from the euro and pound and
are affected by the depreciation of the US dollar.”
Other
notable increases were for alcoholic beverages
(8.4 per cent), hotels, cafes and restaurants
(7.5 per cent), transport (5.6 per cent), recreation
and culture (5.3 per cent) and health (4.4 per
cent)
(See
Graph).
The
increase in the prices of alcoholic beverages
was due to increased government taxes, the report
said.
Food
price inflation, it said, contributed to consumers
having to pay more to dine out.
Transportation
costs rose due to the increasing cost of spare
parts and accessories and passenger transport
services.
The
report said service operators passed on costs
to passengers and to compensate for fewer trips
made. It read: “In particular, maxi and
taxi fares along the various routes throughout
the country have been rising over the past 12
months as taxi drivers sought to maintain incomes
in the face of higher operating costs and fewer
trips related to transportation bottlenecks.”
Regarding
recreation and culture, higher international
oil prices caused the price of packaged tours
to be hiked.
Williams
commented that while core inflation remained
relatively unchanged at 4.5 to 4.6 per cent over
the past five months, its “stickiness” indicated
that underlying inflationary pressures were still
very strong.
Story
by Verne Burnett from The Trinidad Guardian
The
Trinidad Guardian
Thursday, November 15th 2007
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