Newly appointed Governor of the Central Bank, Alvin Hilaire, yesterday signalled that he intends to keep faith with the interest rate policies instituted by the previous governor, Jwala Rambarran, even as he said that his predecessor’s decision to announce that T&T was in recession formed part of the Bank’s official record.
“I don’t consider monetary policy to be governor-dependant. Monetary policy is continuous. It is one Central Bank and we work together as a team with one philosophy,” said Hilaire, in response to questions from journalists. He said the Central Bank monitors conditions on a daily basis and adjusts its policies as necessary.
Hilaire met the media at the Central Bank on his fifth working day on the job, following his appointment to the top job on December 23, hours after the termination of the appointment of the previous governor.
Rambarran, who is T&T’s only Governor to have been fired, restricted his personal interactions with the local media to comments made following his presentations at the five monetary policy forums.
On the issue of whether T&T is in a recession, Hilaire said: “We had a statement from the Central Bank a few weeks ago. I will not distance myself from that and I would advocate more concentrating on where we are at and what to do about it.
“The situation is serious. It needs immediate attention. It started from the external sector and spilled over to the domestic sector. We have some buffers to address the situation, which we did not have before and the Central Bank has the technical capability to deal with the situation.”
At the controversial fifth monetary policy forum on December 4, Rambarran announced that T&T was in a recession, based on three quarters of declining out and an initial read on the fourth quarter. His comments were disputed by Finance Minister Colm Imbert and Prime Minister Rowley, who challenged Rambarran to produce the data or facts to corroborate the finds of a recession.
Hilaire said the decision to separate the Heritage and Stabilisation Fund and to access US$1 billion from it in the 2016 fiscal year was an indication that the Government wanted to draw down some of its savings rather than rely totally on borrowing.
Asked if he subscribed to Rambarran’s view that capital flight can be controlled by higher interest rates and not by other adjustments, including the exchange rate, Hilaire said the difference between T&T and US interest rates mattered as did the confidence of investors in the system.
He said countries like Barbados and Greece, controlled demand for foreign exchange, with a fixed exchange rate, by reducing aggregate demand.
“There are two ways of dealing with a balance of payments imbalance: one is on the price side, the exchange rate, and the other is on the income side, by compressing aggregate demand.
“In the case of a floating exchange rate regime, you could allow your currency to move, which could help equilibrate the demand and supply of foreign exchange. But it is important that exchange rate policy be consistent...and it needs to minimise volatility. Ultimately, exchange rates do find their right value. The question is whether they do so with volatility or smoothly.”
Hilaire said he did not have a preference between fixed and floating rates as he believed that the right choice was the policy that worked. He said countries that opt for fixed exchange rates, in the context of high demand for foreign exchange, must introduce policies that will reduce incomes.