The Central Bank of Barbados announces a modification to its monetary policy.
Effective December 15, 2006, the minimum rate of interest payable on deposits will be increased from 4.75% to 5.25%.
Available data show that retained imports fell marginally (by 1.5%) during the first nine months of 2006. However, their absolute value was still high, given the large increase which was recorded during the corresponding period of 2005. At the same time, bank credit to the private sector was still robust, expanding by 8.3% as a result of the strong demand for residential mortgages and additional borrowing by the distributive sector and private financial institutions. Accordingly, the net international reserves (NIR) fell by $103.7 million between January and September this year.
The change in the minimum deposit rate is intended to encourage savings and through the impact on lending, slow the rate of growth in credit to the private sector, and by so doing, reduce imports and improve the balance of payments. Moreover, the minimum deposit rate of interest will now be the same as the Fed Funds rate (which is the benchmark for deposit rates in the United States) thereby helping to remove the incentive for outward flows in search of higher return.