PORT-OF-SPAIN: The Central Bank of Trinidad & Tobago says it has injected US$400 million into the banking system in January, the largest foreign exchange intervention it has made since selling US$315 million in November 2010.
The bank said that it started its 2015 strategic foreign exchange management program with a US$200 million intervention on January 15. Eight days later it sold US$100 million, which was followed by another sale of US$100 million on January 28.
Last week, the International Monetary Fund (IMF) said that shortages of foreign exchange remain a critical problem for the Trinidad & Tobago economy, with businesses continuing to report severe difficulties in paying suppliers.
However, the IMF was encouraged by the Central Bank’s intention to increase the size and frequency of foreign exchange injections until the backlog of orders is eliminated.
“It will be essential to continue to meet foreign exchange demands in a timely manner in order to restore the market’s confidence,” the IMF said.
The Central Bank said despite selling US1.7 billion to the banking system last year, significant unsatisfied demand carried over into the start of 2015.
“The negative national sentiment surrounding sharply falling oil prices aggravated unsatisfied demand for foreign exchange as future demands from the public and business community have been brought forward,” it said. “With elevated domestic liquidity levels fuelling strong growth of consumer credit and helping to finance substantial imports of consumer durables, Central Bank’s foreign exchange interventions are indirectly contributing to absorbing excess liquidity in the banking system.”
The Central Bank said that one objective of its monetary policy is to maintain stable conditions in the domestic foreign exchange market.
“Our 2015 foreign exchange program is framed in the context of our medium-term balance of payments outlook, which prudently views lower energy prices as a cyclical phenomenon over the next three years.
“This year’s program is aimed at preventing foreign exchange shortfalls from arising as a result of escalating demand and reduced supply due to lower energy export earnings,” the Central Bank said, noting that Trinidad & Tobago’s net official reserves currently stand at US$11.1 billion, representing 12.5 months of import cover.