The Central Bank of Barbados announces a Modification to its Monetary Policy

The Central Bank of Barbados announces a modification to its Monetary Policy

The Central Bank of Barbados wishes to advise the public of a modification to its monetary policy.

Effective October 20, 2008, the minimum rate of interest payable on deposits will be reduced from 4.5% per annum to 4.0% per annum.

Between November last year and April this year, there was substantial easing in the minimum deposit rate which is the benchmark for other interest rates.  This policy was intended to reduce the costs of doing business and the level of liquidity in the banking system.

Since then several developments have underscored the need for a further reduction in the minimum deposit rate.  Economic activity has slowed and the turmoil in world financial markets is expected to impact negatively on tourism and the international business sector in particular, in the short to medium term.  This environment will increase the risk of credit default if cash flows are not strong.  Moreover, the banking system is still very liquid and the favourable spread with respect to the US Fed Funds rate remains a deterrent to capital outflows.

Given the current high level of liquidity and the economic slowdown, it is not anticipated that any resulting decline in loan rates would boost the demand for credit to any significant extent, and consequently, imports of goods and services.

This modification in monetary policy is being published in the Official Gazette of October 6, 2008.

October 3, 2008