April 2008 Report - Central Bank of Trinidad and Tobago

CENTRAL BANK OF TRINIDAD AND TOBAGO MONETARY POLICY REPORT APRIL 2008
MONETARY POLICY REPORT
APRIL 2008
Part I - Overview
1. The International Setting
Since the publication of the last Monetary Policy
Report in November 2007, global financial market turmoil
has intensified as losses related to the sub-prime mortgage
crisis unfold, exacerbating the credit crunch. The spiralling
oil price to previously unexpected levels has led to a surge
in the prices of other commodities, which are now serving
as hedging mechanisms. The US dollar has fallen to historic
lows and this, combined with the sky-rocketing of global
food prices, has raised inflation fears in both developed and
developing countries.
Meanwhile, the statistical evidence that is emerging
is confirming the significant slowdown in the US economy,
raising the spectre that a recession is around the corner,
if not here already. There are signs of a weakening in
economic growth in Western Europe but most emerging
and developing countries still appear to be remarkably
resilient.
Some of the highlights of the past six months have been:
• Bank losses from the sub-prime crisis are low, estimated
at US$565 billion and projected to reach US$1 trillion.
This crisis has led to the collapse of Bear Stearns, the
world’s fifth largest investment bank, while several
other major banks have had to find additional capital
to cover growing losses.
• The uncertainty created by the still unfolding crisis has
curtailed inter-bank lending and is now being reflected
in a generalised credit squeeze.
• The Federal Reserve has injected considerable sums
and eased its lending criteria in an effort to support the
financial system. Other European central banks have also
provided liquidity to strengthen the financial markets.
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