April 2008 Report - Central Bank of Trinidad and Tobago

CENTRAL BANK OF TRINIDAD AND TOBAGO MONETARY POLICY REPORT APRIL 2008
for commercial banks was raised on eleven occasions to
contain credit expansion and now stands at 15 per cent.
There is a concern, however, that higher interest rates could
result in an appreciation of China’s currency, which along
with a slowing US economy could hurt Chinese exports.
Although India maintained a relatively fast pace of
growth in 2007, the rate of economic expansion was lower
than in the previous two years. India’s GDP grew by 8.4
per cent in 2007 compared with 9.1 per cent and 9.3 per
cent in 2006 and 2005, respectively. Inflationary pressures
moderated in January 2008 to 5.5 per cent after reaching
7.26 per cent in August 2007. However, with global prices
of wheat, grain and energy at all-time highs, inflation remains
a potential threat to the Indian economy. At its quarterly
monetary policy meeting in January 2008, the Reserve
Bank of India kept its key interest rate, the repurchase rate,
unchanged at 7.75 per cent.
The global financial turmoil has so far had a limited
effect on Latin America since economic growth continues
to be underpinned by the surge in commodity prices, which
has also strengthened their fiscal positions. Real GDP growth
in Latin America has averaged 5.6 per cent in the period
2003-07, with the best performers being Brazil, Venezuela,
Argentina, Peru and Uruguay (Table 2). Latin American
exports to China have increased substantially in recent years
because of the emergence of China’s industrial base founded
on a more resource-intensive pattern of production. China
is now a main importer of copper from Chile, iron ore from
Brazil and coal from Colombia. More than 50 per cent of
Latin America’s exports of soya beans now go to China.
Inflation has now become the major challenge for Latin
American governments facing strong demand resulting from
rapid economic growth and the increase in oil and food prices
(Table 3). This recent challenge poses risks for one of the
region’s most important macroeconomic accomplishments
of the last decade – the sustained reduction in inflation.
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