By: Staff Writer
November 14, 2023
Providing credit during pandemic was critical
Pandemic changed foreign reserve requirements
Tourism rebounding
70% of inflation in region comes from external factors
The Governor of the Central Bank of Trinidad and Tobago said that inflation in the region is 70 percent imported and there is very little that Caribbean countries can do about it with regard to monetary policy.
The pandemic also presented significant economic challenges for Caribbean countries and part of the response was to coerce banks to provide more credit despite the economic shutdown of all of the borders in the Caribbean.
Dr Alvin Hilaire, said on a forum hosted by the Inter-American Development Bank that while the Caribbean is heavily reliant on tourism when the COVID-19 caused an economic shutdown where no tourists could enter, created a situation where Caribbean countries who were in better positions to withstand the shock, fared better.
He also said: “In Trinidad and Tobago, we, however, had larger buffers with our Heritage and Stabilization fund and our Sovereign Wealth Fund and we had high reserves and some fiscal space, but this was quite important for the Caribbean.”
Since emerging from the pandemic the region is facing another challenge in inflation where the cost of everything is going up around the world. “Monetary policy in Trinidad and Tobago, as well as the rest of the Caribbean was actually quite straightforward. In Trinidad and Tobago, we reduced our reserve requirement from 17 percent to 14 percent and reduced our policy rate from 5 percent to 3.5 percent and we kept it there for quite some time. The focus was more on prudential matters trying to get the banks to provide credit, and so reducing some of the barriers to credit quality,” he said.
As a result of swift action by central bankers across the region, most countries are “recovering quite well,” to normalcy with tourism picking back up with Guyana being the “outlier,” showing strong recovery due to the windfall from their oil investments.
Monetary policy has tried to keep pace with the inflationary pressures, adjusting to meet the demands of the post-COVID environment. Likening the inflation rate to that of a Sombrero, Dr Hilaire said that inflation went up and then went down, but the policy rate went down in the Caribbean when compared to policy rates in Latin American countries and most of the world that went up and stayed up to match inflation. Despite the difference in approaches there were similar outlooks on inflation across the Latin American and Caribbean (LAC) region.
Dr Hilaire added: “In the Caribbean, and in Trinidad and Tobago, monetary policy has many objectives, inflation is just one of them. So that even our charter, we’re talking about production, employment, credit, exchange rate, everything under the sun, it’s, it’s a lot to be taken into account.”
What also has to be taken into account is that most, if not all, of the inflation in the Caribbean is imported from other trading partners and has nothing to do with the internal monetary policy regimes, particularly so for countries with a fixed exchange rate, something Dr Hilaire touched on.
He also said: “So when we target monetary policy, we have to be careful if it is from outside. The closest inflation target in the Caribbean is Jamaica, which has an independent central bank and it changed its law recently, but the rest of the Caribbean has a lot of these other things going on.”
Things like the “wage price spiral” has not taken hold throughout the Caribbean and fiscal consolidation has “taken hold” in the region but for the most part, inflation is still externally driven.