Central Bank: Protect foreign reserves, set proper conditions for growth

Central Bank, Independence Square, Port of Spain - File photo

THE Central Bank says caution must be exercised in 2026 in striking a balance between protecting TT's foreign reserves while creating the proper conditions for sustainable economic activity to grow and thrive.

The bank made this observation in its final monetary policy report for 2025, issued on December 31.

In its observation, the bank said factors such as wage adjustments and aggregate demand have the potential to offset this balance if not managed carefully. The former includes the ten per cent wage increase to public servants promised by the UNC should it win the April 28 general election. The UNC won the election 26-13-2. Partial payments were received in December.

The bank projected aggregate demand may increase as household incomes are perched to receive a boost in the coming months, arising out of wage adjustments.

The bank said, "Against this backdrop, given TT’s high propensity to import, safeguarding the country’s international reserves becomes paramount."

Recently, international ratings agencies Moody's and Standard and Poors (S&P) have revised TT's economic outlook from stable to negative, based mainly on declining foreign reserves.

While there has been a slight stabilisation of foreign reserves in recent months, from US$4.6 billion in October to US$5.3 billion as at December 19, the bank said TT is by no means out of the woods yet.

"Conventional international indicators of reserve adequacy suggest close monitoring is warranted."

"Domestically,” the bank said, "a boost to natural gas production in the second quarter of 2025, with first gas from bpTT’s Cypre and bpTT/EOG’s Mento fields, underpinned a resurgence in energy sector output (10.4 per cent year-on-year).”

The bank said, data from the energy ministry showed for the second quarter of 2025, the production of natural gas rose by 11.7 per cent (year-on-year), while crude oil production increased by 8.9 per cent.

"The petrochemical industry recorded expansions in ammonia (23.6 per cent) and urea (51.3 per cent), while methanol output continued to decline (-12.7 per cent)."

The bank said while these developments are positive they are counterbalanced by slowdown in non-energy sector activity which is estimated to have persisted during the second quarter of 2025.

Within this sector, the performances were not evenly distributed.

The bank's indicators showed "softer performances for the distribution, construction and manufacturing sectors, which countered gains in the finance and utilities sectors."

Domestic financial conditions are finely balanced.

The bank said, "System liquidity constraints have eased in recent months, despite continued government borrowing activity and notable upticks in interbank and repo market activity."

After declining to $3.5 billion in October, commercial banks’ excess reserves at the Central Bank averaged $4.4 billion in November 2025, and rose further to $5.3 billion by mid-December 2025."

But the bank said while this was happening, the pace of private sector credit expansion slowed.

"Private sector credit rose by 6.3 per cent (year-on-year) in October 3 2025, down from growth of 8.6 per cent in June 2025."

The bank attributed the slowdown to more modest business credit growth (6.6 per cent in October compared with 11.8 per cent in June 2025).

The bank added, "Consumer lending growth slowed to 8.0 per cent from 9.7 per cent over the same period, driven by lower loan demand for credit cards, motor vehicles and bridging finance."

Under these circumstances, the bank chose to maintain the repo rate at 3.5 per cent and said it is "prepared to take the necessary monetary policy actions to maintain a prudent balance between safeguarding the foreign reserves and fostering favourable funding conditions supportive of domestic economic activity."