General
Press Releases
Press
Release October
4, 2002The
Central Bank Of Barbados Issues New Monetary Policy
The Central
Bank of Barbados wishes to advise the public of a change in its
monetary policy.
By December
31, 2002, the minimum interest rate payable on deposits must be
reduced from its present level of 3% to 2.5% per annum.
Simultaneously,
the weighted average lending rate of interest on loans will also
be reduced from 8.5% to 8%. Any reductions in both rates in the
interim period must be equal and simultaneous until these
targets are reached at December 31, 2002. Interest rates on
consumer installment loans, credit card loans, mortgage loans,
foreign currency loans, staff loans and loans extended through
the Central Bank's special facilities are to be excluded from
calculations of the weighted average lending rates.
Also,
effective November 1, 2002, the securities requirement for
commercial banks will be reduced from 18% to 16%.
This decision
on interest rates is based on the need to ensure that existing
businesses are given every chance to survive.
The servicing
of debt is a major component of the operating costs of many
manufacturing and tourism-related concerns. Several of them have
shown some resilience, but will still need some assistance in
their efforts to restructure and ride out the current period of
difficulty. Also, it is the price for mitigating further
reductions in business activity and hence in incomes. In
lowering lending rates, commercial banks would need some
reduction in their operating charges in order to facilitate this
reduction. Therefore, the Central Bank of Barbados has decided
that there will be an equal and simultaneous cut in the minimum
deposit rate of half a percentage point.
The Central
Bank of Barbados also announces a reduction in required
government securities to be held by commercial banks. In light
of the very high levels of liquidity which have obtained in
recent years, it is no longer necessary to have a securities
requirement in order to guarantee the purchase of government
securities. Moreover, banks have had some difficulty in meeting
the securities requirement because of competition for this
paper. The Central Bank of Barbados believes that a further
reduction in the requirement would address all of the above
issues. This decision is also consistent with the Bank's
commitment to further liberalise the banking system.
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