The Central Bank of Trinidad and Tobago has reduced the cash reserve requirement for commercial banks from 14% to 10%. This decision was announced in a statement on June 19. Former Minister in the Ministry of Finance, Mariano Browne, addressed concerns raised by Dr.
Terrence Farrell, former Central Bank Governor, about the potential for increased government borrowing due to this change. Browne acknowledged the validity of Farrell’s observations. He explained that the lowered reserve requirement allows banks more flexibility to lend additional funds.
In June, the Central Bank noted an increase in loans by commercial banks. Private sector credit grew by 6.7% year-on-year in April 2024 compared to 7.9% in January 2024. Consumer loan growth (10.2%) exceeded business loan expansion (9.5%).
The Central Bank plans to counterbalance the increased liquidity by engaging in open market operations.
Lowering bank reserves explained
This suggests they intend to issue instruments on behalf of the government to finance the unbudgeted deficit announced during the mid-year budget review.
Finance Minister Colm Imbert addressed the 2024 budget in the House of Representatives on June 7. The budget initially projected revenues of $54.012 billion, expenditures of $59.209 billion, and a fiscal deficit of $5.197 billion. However, fluctuations in oil and gas prices have led to a revised revenue projection of $51 billion.
Imbert assured that the government is seeking additional revenue sources and managing expenditures prudently. He expressed confidence that the revenue reduction is temporary and predicted a reversal by 2026 or 2027 due to anticipated increases in natural gas volumes. The Finance Minister referenced an IMF country report from June 5, which indicated that the Trinidad and Tobago economy was at its strongest in a decade.
He emphasized the government’s compliance with IMF Article IV consultations. While the reduction in the cash reserve requirement aims to address certain financial pressures, it has raised concerns about its implications for government borrowing and foreign exchange demand. The government remains committed to pragmatic financial management amid fluctuating revenue landscapes.
