Central Bank tightens monetary policy

Come the middle of June commercial banks operating here will have to hold a higher percentage of Government bonds and other promissory certificates than they currently do.

Acting Governor of the Central Bank of Barbados Cleviston Haynes today announced changes to the monetary policy as Government seeks “to address the situation of the size of the deficit and how it is financed”.

“The Central Bank announces a tightening of its monetary policy stance through an increase in its Barbados dollar securities reserve requirement ratio for companies licensed under part II of the Financial Institutions Act,” Haynes told journalists this morning as he delivered his report on the performance of the Barbados economy during the first quarter of 2017.

“The increase will require banks to now hold 15 per cent of their domestic deposits in stipulated securities with effect from June 15, 2017,” he said.

Government is exploring ways to curb the worrying fiscal deficit, which ended the financial year at an estimated six per cent of gross domestic product, higher than the projected 5.8 per cent.

The change announced by the Central Bank today is the first increase to the securities reserve requirement since 2007, when the ratio was lowered to ten per cent.

Haynes explained that the cash reserves and the securities requirement were among the policy options available to the bank, and now was a good time to exercise its prerogative.

“It is one of the tools which is available to us that we deem at this point in time that is an appropriate lever for us to exercise as we try to bring stability to the economic situation,” he said in the financial institution’s first media briefing in over two years, ending a media blackout imposed by fired Governor Dr DeLisle Worrell back in 2014 over a disagreement with the Nation newspaper over the accuracy of its coverage.

In recent years commercial banks have been moving away from funding Government through the purchasing of promissory papers despite an increase in liquidity in the banking system.

In fact, in delivering his first quarter economic report this morning, Haynes said excess liquidity in the banking system had reached 17 per cent, up from 10.6 per cent a year ago.

“This increase partly reflects the decision by some banks to substitute some of their holdings of Government securities for cash at the Central Bank,” Haynes reported.

He said the cash reserves requirement for commercial banks remained unchanged at five per cent. The reserve requirements for deposit-taking trust and finance companies and merchant banks also remained unchanged.

10 Responses to Central Bank tightens monetary policy

  1. Sheron Inniss May 10, 2017 at 5:51 am

    I want to see ethical banking bout here. It pulling loud.

    Reply
  2. Tony Webster May 10, 2017 at 6:39 am

    Translation: you will not hold more (much more) Government of Barbados paper (sorry investments), on your own volition, so we will FORCe you to do this.

    Hmmm…this would mean a cupple things:-
    1. It will allow the $50Million per month “intravenous drip” to Min. Finance, to be un-plugged from the C.B.B. (and allow them to hold up “cleaner” hands to IMF and Moodys, and S&P,. HOORAY!!

    2. it will NOT however, have ANY EFFECT at all, on the actual government deficit. This will continue, until Min. Finance, actually does something to either actual secure real growth in the economy, or else trims government’s outgoings, or else increases governments revenues.
    3. The banks will “react”, most likely by decreasing interst paid on deposits like to 0.0000000000015%, or increasing bank charges, or looking at pulling-out, as the C.B.B. can, from here on in, simply suck harder on the “banks’ sore nipples”.
    Simple . Even an idiot like me can understand that.

    NEX foolish question, please?

    Reply
  3. Greengiant May 10, 2017 at 6:52 am

    They won’t pull out, this island is a cash cow for banks, and other multinational corporations mate. Ask flow if in doubt.

    Reply
  4. Freeagent May 10, 2017 at 8:42 am

    I agree that we may see some of our commercial banks pulling out of Barbados. People enjoy the sweets but they do not pull together when the sweets are gone.

    Reply
  5. Mac May 10, 2017 at 9:46 am

    How about Central Bank setting interest on deposits

    Reply
  6. Tony Webster May 10, 2017 at 9:52 am

    Green giant: I very much enjoy reading your comments. In this case, however, I remind you that Banks here earn (most of) their profits…in BDS, and need to ask C.B.B. for the appropriate F/X, to “ship it home”. Look down the road, if you were a bank….??

    Mind you, to”close” a bank…one needs to do so on a “willing seller, willing buyer” basis..which means…price negotiable…. a credit Union, or a coatition of these MIGHT be interested, as they would get “instant” commercial bank status, connections to overcome the “corresponding bank” issues..plus acccess to VISA , SWIFT etc . One other well-heeled individual, or a group of high-flyers, plus a cupple of friends here and in Trinbago, might also be able to handle it. Interesting possibilities ahead…

    Any way you slice it, this is a desperate act. Forcing an international bank, like this, into how it lays-off surpluses, is NOT the way the markets like it: it IS NOT the way to influence people and make, or keep, friends…..both of the economic, or political, or debt-rating hue.

    Reply
  7. Alex Alleyne May 10, 2017 at 10:05 am

    Maybe if some Banks up and leave ,then it will be a great time for Barbados to open it’s own BANK………………………………….
    “BAJAN SAVINGS AND LOAN”.

    Reply
    • Ras May 15, 2017 at 4:12 am

      A great time for Barbados to open it’s own BANK again so that the Government of the day can sell it again to the Trickidadians.

      Reply
  8. Milli Watt May 10, 2017 at 6:11 pm

    this is pitiful to read……..well well well. Just don’t know about this crowd at all.

    Reply
  9. Ossie Moore May 11, 2017 at 2:42 pm

    Milli Watt you’ve got to start at Nano Watt!

    Reply

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