Figure 4
Net International Reserves (USD, millions)
Source: Central Bank of Trinidad and Tobago, First Citizens
Research & Analytics
Liquidity in the domestic financial system remains very high.
Indeed, during the first three weeks of September 2013,
commercial banks’ excess reserves at the central bank soared
to TTD8.3 billion, compared to a daily average of TTD5.4
billion in July.
Because of the liquidity in the system, interest rates remained
at low levels, as evidenced by the downward shift in the TT
dollar yield curve. Compared to March 2013, rates across the
spectrum of the curve trended lower up until October, with
more pronounced movements along the belly of the curve,
where the 10-year point fell by almost 100 basis points to
2.49% as at the end of October 2013. There was marginal
upward movement in the short end of the curve, where the
1-year yield rose by 26 basis points to 0.6%.
Outlook
Figure 5
Commercial Banks’ Excess Reserves (TTD millions)
Source: Central Bank of Trinidad and Tobago, First Citizens
Research & Analytics
Figure 6
TTD Yield Curve Comparison
The Ministry of Finance and the Economy estimates that
GDP will expand at a rate of 1.6% for the full year 2013,
expected to be supported by the non-energy sector. This
projection is in line with the International Monetary
Fund (IMF), who also forecasts growth of 1.6% in 2013, to
expand further by 2.3% in 2014. The performance is likely
to be driven by the non-energy sector, particularly in the
construction, finance and distribution sectors. Depending
on the pace of implementation, there are two major projects
which are both expected to spur economic growth. These
are a TTD500 million joint venture between two private
entities and the construction of a TTD400 million clay
plant. Despite these fairly large projects expected to support
growth, risks to the outlook remain. We expect that the US
Federal Reserve would not just yet scale back its quantitative
easing program, and so the local interest rates are likely to
remain at fairly low levels, especially in light of the high
liquidity in the system and the central bank’s accommodative
stance on monetary policy. Once economic conditions in the
US warrant tapering, and US interest rates start to increase,
interest rates locally are expected to rise also, in an effort to
prevent significant capital outflows.
Despite the muted performance of the Trinidad and Tobago
economy in 2012 and modest expectations for 2013, First
Citizens Research & Analytics holds a stable view on Trinidad
and Tobago primarily because of strong external buffers and
its favorable fiscal profile.
Source: Central Bank of Trinidad and Tobago, First Citizens
Research & Analytics
26
Caribbean Investment iQ December 2013