Central Bank warns TT to watch big spending

The Central Bank is again warning the government of Trinidad and Tobago to go easy on big spending. Governor Ewart Williams says increasing inflation poses the biggest threat to the country’s economy, and warns of the possibility of double-digit inflation.

The annual inflation reached 10 per cent in October 2006, then took an encouraging downward slide reaching a low of 7.3 per cent in November, last year. But since then it has been moving up again, reaching 10 per cent again in January with February figures showing at 9.4 per cent.

Read related story: Inflation reaches 10%

One of the bank's major concerns is the continuing rise in food prices, which pushes inflation up. The other problem is public expenditure.

Williams told journalists Monday it is imperative for the government to slow down the public spending both by the central government and quasi-government institutions.

He said governments all over the world are watching inflation closely and developing monetary policies to keep it in check.

"Everybody has now recognised that the global food crisis and financial turmoil threaten stability and certainly price stability,” he said, adding that the government must act with urgency to stimulate agriculture.

He suggested a partnership involving government, business and labour to work at controlling prices.

Williams raised one major private transaction, which he says can have a significant impact on the economy. He said the Central Bank is particularly worried about the massive payments to be made by the Royal Bank of Canada (RBC) to shareholders of RBTT, who agreed recently to sell their shares in the takeover.

RBTT shareholders approved the sale on March 26 for $7.5 billion.

The Central Bank's Monetary Policy report says based on the impact of this financial transaction the government must rethink how it is spending money.

Williams was not optimistic about the government reaching its target of six per cent inflation by the end of 2008 because of serious challenges on the domestic and international scene.

The United States is facing what its senior economic planners have called the worst crisis since the Great Depression. And that will affect not only America's big trading partners like Canada, but economies across the world.

Williams said one of the biggest problems facing Trinidad and Tobago today is consumer spending, noting that bank loans for motor vehicles went up by 50 per cent last year.

The bank's Monetary Policy Report says, "Stronger monetary policy action and considerable expenditure tightening" is needed to tame "existing demand pressures."

It recommends re-phasing some budget expenditure to deal with poverty reduction programs and projects "geared to accelerate the resuscitation of the agricultural sector.”

Read Jai Parasram's column on agriculture: Revenge of the stepchild