The Central Bank of TT (CBTT) has made a significant change that could have a big impact on the country’s financial scene. In a recent announcement, CBTT revealed that it has lowered the reserve requirement for commercial banks from 14 per cent to 10 per cent.
This new requirement officially goes into effect starting from the reserve week beginning July 24. According to CBTT, this decision was made after a special meeting of the Monetary Policy Committee (MPC) on July 19. The committee closely examined the recent decrease in excess reserves of commercial banks, which are essentially deposits held by banks at CBTT that surpass the required reserve ratio of 14 per cent of prescribed liabilities (deposits and short-term borrowings).
As of July 1 to July 18, 2024, the daily average of commercial banks’ excess reserves was at $2.7 billion, down from $3.9 billion in June 2024. The CBTT’s recent monetary policy announcement in June highlighted a similar trend, with excess reserves averaging $4.2 billion in the first half of June, slightly lower than in May.
The MPC reasoned that by lowering the reserve requirement and focusing more on open market operations, the liquidity in the market could see an immediate impact. This move aligns with CBTT’s overarching goal of gradually transitioning towards more market-driven instruments of monetary policy.
With global economic conditions remaining relatively stable, it’s essential for CBTT to stay vigilant and adaptable. Most central banks around the world have maintained or lowered their policy rates due to easing inflation pressures. For instance, in June 2024, the US Federal Reserve held its federal funds target range steady while the European Central Bank lowered its policy rate.
Despite ample financial sector liquidity in the second quarter of 2024, some banks experienced liquidity imbalances, leading to temporary interbank market borrowing. On a positive note, private sector credit showed promising growth year-on-year.
Looking ahead, CBTT remains cautious yet optimistic about the future. The MPC has decided to keep the repo rate steady at 3.50 per cent while closely monitoring both international and domestic developments. The next monetary policy announcement is scheduled for September 27. Stay tuned for more updates on TT’s financial landscape.
