Governor of the Central Bank Larry Howai says the majority of foreign exchange in Trinidad and Tobago does not come from the Central Bank.
Speaking at the T&T Stock Exchange ‘Capital and Investor Conference’ on Friday, he addressed what he called a widespread misconception about the country’s foreign exchange supply.
He revealed that the Central Bank contributes just over 20% of the foreign exchange in circulation and as much as 80% of forex entering the commercial banking system comes from the private sector.
He also pointed to a TT-US rate differential, which has made it more attractive for locals to hold forex abroad.
“Indeed the flow of Central Bank interventions to the authorised dealers represents just over 20% of what comes into the market. The other close to 80% is what comes in from companies and from other sellers of foreign exchange directly into the commercial banks.”
He said the ideal scenario is one where businesses and individuals earn foreign exchange through exports and creative industries, reducing reliance on state intervention.
“Is for individuals and businesses at all levels to embark on a journey to earn foreign exchange, whether through traditional exports of goods and services or non-traditional exports such as those from the creative sector.”
The Governor also addressed the TT-US interest rate gap, which he said is encouraging locals to hold foreign currency abroad.
“At present there’s a gap in the TT-US differential that makes it more attractive to keep foreign exchange in a US bank account or invest in the US stock market. This differential for three-month Treasury bills has been narrowing since 2024 and is likely to continue to get smaller as the Fed lowers its interest rates.”
Mr. Howai acknowledged the delicate balancing act the Central Bank faces when considering interest rate adjustments to encourage foreign exchange inflows, without stifling domestic growth.
“The Central Bank also needs to examine the case for interest rate adjustments, which would reduce the difference in these rates. So we need to take into account how such action can encourage capital inflows into Trinidad and Tobago, but also understanding how it may affect domestic economic activity as it will raise the cost of borrowing for businesses, for consumers, and for Government.”
He stressed the importance of coordinated fiscal and monetary policy, especially as injecting liquidity into the economy could potentially fuel inflation.
“Another key consideration is the relationship between the Ministry of Finance and the Central Bank because as fiscal injections increase the flow of funds into the economy, which can cause inflation, we need to adjust so as to reduce the impact of that on the economy.”
Governor Howai said the Central Bank welcomes feedback and policy proposals from the public, noting that they have received suggestions as far as forex is concerned.