The Central Bank of Trinidad and Tobago has opted to keep its benchmark repo rate unchanged at 3.50 per cent, citing a careful balancing act between a deteriorating global economic environment and persistently low domestic inflation.
The decision, announced today by the Monetary Policy Committee (MPC), comes against the backdrop of significant global disruption triggered by the ongoing Middle East War, which has choked energy exports and severely restricted shipping through the Strait of Hormuz. The conflict has sent oil, refined product, and fertiliser prices surging, while driving up maritime costs and dimming growth outlooks worldwide.
The International Monetary Fund now projects global growth of 3.1 per cent for 2026, a downward revision of 0.2 percentage points from its pre-war January forecast, after two consecutive years of 3.4 per cent growth. Global inflation, meanwhile, is expected to climb to 4.4 per cent this year, up from 4.1 per cent in 2025 and well above the 3.8 per cent forecast the Fund had issued before the conflict escalated.
The war has also reversed the monetary policy trajectory of major central banks. Both the Bank of Japan and the European Central Bank raised interest rates by 25 basis points in June, pointing to energy-driven inflationary pressure. The United States Federal Reserve held its federal funds rate steady at its June meeting but signalled that inflation remains above its 2 per cent target, leaving the door open to future hikes.
Domestically, the picture looks markedly different. Headline inflation fell to just 0.3 per cent year-on-year in May 2026, down from 0.7 per cent in March, as international price pressures have been slow to filter through to the local economy. Food inflation eased sharply to 0.2 per cent in May, while core inflation held steady at 0.8 per cent.
The labour market has also continued to improve. The unemployment rate dropped to 4.3 per cent in the fourth quarter of 2025, compared with 4.8 per cent the previous quarter and 5.5 per cent in the same period a year earlier.
However, there are signs that economic momentum may be softening. The Central Bank noted that activity in the energy sector has been held back by constraints in natural gas availability, while business confidence and investment in the non-energy sector have been weighed down by global uncertainty. Private sector credit growth slowed to 4.0 per cent year-on-year in April 2026, down from 5.3 per cent at the end of 2025, with business lending showing the sharpest deceleration — falling from 5.8 per cent to 2.9 per cent over the same period.
System liquidity remains ample, with commercial banks’ daily excess reserves at the Central Bank averaging $4,578 million in mid-June, though this is down from $5,625.6 million in March. Interbank market activity, which was elevated between March and May, has since eased.
On the interest rate front, the spread between short-term 3-month treasury rates in Trinidad and Tobago and the United States widened to -92 basis points in May, from -69 basis points in March, reflecting a slight dip in domestic rates. On the longer end, the 10-year differential narrowed modestly to +158 basis points.
Weighing the risks on both sides global headwinds and domestic softness on one hand, and subdued local inflation on the other, the MPC concluded that no change to the repo rate was warranted at this time. The Bank reiterated its commitment to monitoring both international and domestic developments closely, and said it stands ready to act if conditions change.
The next monetary policy announcement is scheduled for September 25, 2026.