The 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.