By Alicia Chamely
CENTRAL Bank Governor Larry Howai says interest rates in Trinidad and Tobago must go up.
Howai explained this had to be done to help tackle the increasing shortage of foreign exchange.
Discussing the issue of foreign exchange at an engagement with the media on Thursday at the Central Bank in Port of Bank, Howai said the demand for foreign exchange far exceeded the supply.
He said US$6 billion was sold every year in T&T, with credit usage accounting for approximately US$2.317 billion.
Howai said to address the foreign exchange problem the Central Bank would need to address some monetary policy issues.
He said, “We need to address some monetary policy issues. The interest rate is one. I have signalled to the community that they do not want to hear necessarily, which is, interest rates will have to go up.”
Howai continued, “On the other hand, they want to hear it because many businesses export and when they export, they say that when they bring their money back they are not getting a competitive rate of interest. So, we have to increase the rate of interest so that businesses can get a competitive rate when they bring their money back to Trinidad and Tobago.”
He said the increased interest rate would incentivise businesses and individuals to bring their money back to T&T, thus bring USD back into the system.
Howai said, “Some of that may not be available for sale, but nevertheless, it affords us more flexibility, the more USD that we can bring back into Trinidad and Tobago. So, interest rates will have to go up.”
Howai noted the interest rate movements would happen with immediate effect, saying “let’s see what comes out in the budget, let’s see what the effect is on liquidity in the system, on fiscal flows and so on and then we would make that determination.”
He said beyond the interest rate more would have to be done to address the foreign exchange issues, saying, “Liquidity will probably become a little bit more constrained, foreign exchange may have to be managed tighter, and consumption patterns may have to addressed because the overall level of demand will have to be addressed in some way.”
Howai said other measures were also being considered, along with increased interest rates.
The Governor said measures included addressing the EXIM Bank facility with respect to pricing and revolving nature, improving transparency through better reporting, and the prioritisation of the prevention of foreign exchange leakages.
Questioned as to whether there would be a devaluation of the TTD, Howai said that was not a decision he could make, saying that decision would have to be made by the Minister of Finance.
He said, “We provide a lot of guidance on that in terms of information that could be used to determine whether we are at an effective exchange rate. We do the work that is required, but it is not a decision that we make. It is a policymaker’s decision, made by people who were elected to make those kinds of decisions.”
Citizens need to become foreign exchange earners
Admitting the Central Bank could not meet the demand for foreign exchange, Howai said, “The challenge for us is to determine how each one of us could become foreign exchange earners.”
“I have seen a lot of people who never thought they could become foreign exchange earners become foreign exchange earners. Suddenly, you know, even university lecturers are now actually earning foreign exchange by doing gigs outside of Trinidad and Tobago,” he said.
Howai said agriculture had “tremendous potential” for export possibilities, going back to an earlier statement he made, which was “we need to get our farmers back in business.”
Discussing individuals’ potential to earn their own foreign exchange he said, “A lot of it would start small, a lot of it wouldn’t make you millionaires overnight, but over time, building on it we are going to start seeing a lot of flows could come from a lot of initiatives that the small person could do.”
He continued, “The great thing about the internet is that it unleashes the power of the small person.”
Howai said he understood and appreciated that not everybody would be able to be a foreign exchange earner.
He said, “But the fact of the matter is that as our oil and gas goes down and becomes less and less, more and more, we are going to have to face the challenge of how we meet the foreign exchange requirements of the country as a whole.”
