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Trinidad’s economy reels from lower energy prices as COVID-19 impacts demand

As the global economy continues to slow, reduced energy prices are beginning to take a toll on Trinidad and Tobago’s economy, according to the central bank in its latest monetary policy report

The Central Bank of Trinidad and Tobago in Port of Spain.

The decline in price is due to the coronavirus pandemic which has forced many countries take drastic measures to stem the spread of the virus that’s infected 206,000 people worldwide and claimed more than 8,200 lives.

The decline has resulted in an adverse effect on the energy exporter, said the Central Bank of Trinidad and Tobago (CBTT) as the demand for fuel weakens due to a slowdown of industrial production and sharp reduction in airline carriage.

“The impacts on the fiscal and external balances will likely spill over to the growth outlook depending on the duration of the events.”

– The Central Bank of Trinidad and Tobago

Stating that the outbreak is a “major preoccupation globally”, the CBTT said it has “upturned financial markets, created supply chain disruptions, driven energy prices to very low levels and led to the increasing self-isolation of several countries.”

Further, the situation is made worse by the uncertainty which surrounds the virus and its future infections, turning point and potential ripple effects, the central bank said.

The CBTT says Trinidad and Tobago’s inflation rate remains low at 0.4 per cent in January.

What’s more, the decline in energy prices is compounded by disagreement between Organization of Petroleum Exporting Countries (OPEC) and non-OPEC countries which has seen oil prices drop from between US$50 to US$60 per barrel in early 2020 to just above US$30 presently.

“The impacts on the fiscal and external balances will likely spill over to the growth outlook depending on the duration of the events,” the Bank said, adding that inflation remains low at 0.4 per cent, as at January 2020, despite those factors.

An aerial view of Port of Spain Trinidad and Tobago. (Photo: london.ac.uk)

That said, the Monetary Policy Committee (MPC) took the decision to reduce the repo rate by 150 basis points to 3.5 per cent and to lower the primary reserve requirement on commercial bank deposits by three per cent to 14 per cent. The MPC said the actions were taken with a view to “amplify system liquidity in the short run—approximately $2.6 billion in the case of the lower reserve requirement—and allow for a reduction in interest rate spreads by lowering commercial banks’ cost of funds.”

The CBTT said it will continue to monitor and analyse domestic and international development ahead of its next policy announcement in June.