The Central Bank of Barbados announces an adjustment to it Monetary Policy

The Central Bank of Barbados wishes to advise the public of monetary policy initiatives as well as other initiatives under its special schemes.

Two measures relate to changes in monetary policy and two to the widening of guarantees offered to small businesses by the inclusion of medium-sized businesses in the tourism, tourism-related and manufacturing sectors and the provision of technical assistance grants through the Industrial Credit Fund.

Firstly, effective February 1, 2009, the minimum rate of interest payable on deposits will be reduced from 4.0% per annum to 3.0% per annum.

The minimum deposit rate was last reduced by ½ of a percentage point on October 20, 2008. Since then, economic developments indicate the need for further easing.

The economy slowed considerably in the fourth quarter of 2008 and is estimated to have grown only marginally for the year as a whole. This resulted in deterioration in the external current account and a noticeable fall in foreign exchange reserves. During 2009, demand is expected to weaken and this will impact negatively on the cash-flows of business firms and on the viability of some businesses. A reduction in loan rates which should result from lower deposit rates could help some enterprises to cope with cost pressures and remain in business. Moreover, it is also timely, inasmuch as the demand for credit, which was buoyant for most of 2008, has started to abate in recent weeks and is expected to be sluggish in 2009. However, given the time it takes for policy changes to affect business decisions it is necessary to cut the minimum deposit rate as soon as possible if it is to have the desired effect on lending rates later this year. The Bank is aware of the impact on fixed income earners but felt that right now the priority is to keep businesses viable by assisting them in achieving cost-cutting measures through lower loan interest costs which are expected to result.

This modification in the minimum deposit rate is being published in the Official Gazette of January 15, 2009.

Secondly, the Bank will be introducing a repo (repurchase agreement) facility to assist commercial banks in obtaining cheaper credit in a situation where liquidity is tightening and banks hold excess securities. This is a less costly means of access to short-term credit for commercial bank, as it allows them to borrow by using other securities. Initially, the rate would be set in the range of 5.5% to 7.5% depending on maturity. This measure, by lowering the cost of bank liquidity support, should also help to push down lending rates. This facility is scheduled to become effective February 16, 2009.

Thirdly, the Bank has taken a decision to widen the range of entities eligible for credit guarantees under the Small Business Guarantee Scheme to include medium-sized companies in the tourism and manufacturing sectors. Companies with capital of $2 million (formerly $1 million) and companies with gross revenue of $4 million (formerly $2 million) are now eligible to access this Tourism and Manufacturing Guarantee Facility. In the hotel sector this applies to establishments offering between 15 and 50 rooms. The Bank is prepared to guarantee facilities of up to $150,000 for short-term and $300,000 for medium-term use. The above does not apply to past-due debts.

Fourthly, the Board of Directors of the Bank has also agreed to introduce a Technical Assistance Grant to be administered under the Industrial Credit Fund. The total amount of this grant available for allocation in 2009 is $75,000. The Bank will be holding a seminar on January 26, 2009 to familiarise prospective users and commercial banks with the use and access to the Tourism and Manufacturing Guarantee Facility as well as the Technical Assistance Facility. Notice of the time of the meeting will be published in the Press. 

January 13, 2009