Falling Interest Rates in ‘Lockstep’ with the Economy

The Central Bank of Barbados announces a further tightening of its monetary policy stance. The policy change will be applied to the Barbados Dollar securities reserve requirement ratio for commercial banks licensed under Part II of the Financial Institutions Act and it will be implemented in two phases.

Effective December 1, 2017, commercial banks will be required to hold 18% of their domestic deposits in stipulated securities. From January 1, 2018, commercial banks will be required to hold 20% of their domestic deposits in stipulated securities.

This is the second increase for the year and complements the fiscal initiatives introduced by the Minister of Finance in his Financial Statement and Budgetary Proposals earlier in the year.

The cash reserve requirement for commercial banks remains unchanged at 5%. The reserve requirements for deposit-taking trust and finance companies, and merchant banks also remain unchanged.

Central Bank news release 2017-10-31

The news that commercial banks have significantly reduced interest rates on deposits has not come as a surprise to the BU household. Banks are reportedly paying any where from .01% to .25% on deposits. Clearly if banks are about creating shareholder value- like any good public commercial enterprise states as an objective- why do Barbadians expect the banks to pay interest on deposits if there is no avenue to lend excess funds?

When the central bank conspired with commercial banks to remove the minimum interest rate in April 2015 as a strategy to create demand for 5.5% yielding government savings bonds and reduce the cost of servicing domestic debt, the decision confirmed to BU, Wild Coot  and a few others that the economy was in free fall read deep dodo. It appears Barbadians are not as bullish in buying savings bonds and credit unions, insurance companies and other non banking institutions have benefited from deposit placements.

One of the downsides to a protracted low interest rate climate is the impact  on institutional investors. This is important in the Barbados context because of the limited options available to invest AND the role commercial banks play in the domestic market to satisfy the risk appetite of fund managers. It is no secret that the Barbados investment climate lacks sophistication and can be characterized as a closed market. Although credit unions are promoted as a viable option in the local market, the current legislative framework does not position the movement as a significant player, this is reflected in its asset penetration compared to the banking sector.

Earlier this year when the central bank increase the % of deposits commercial banks are statutorily required to hold to 20%, again Wild Coot, BU and a few others wondered about the response from the banks. Minister Chris Sinckler is on record confirming that the commercial banks have significantly reduced  takeup of government securities ostensibly because of sovereign risk exposure linked to 20+ credit rating downgrades. By ‘forcing’ banks to hold more funds on reserve there was bound to be a price to pay for the extra-risk being carried by the banks. A reminder of Newton’s third law – for every action, there is an equal and opposite reaction.

Where do we go from here?

The market is in a hold position until the next general election is called. No significant decision will be taken by the market to inject significant investment whether local or foreign. Investment from Maloney/Bjerkham is the one exception given the fact they have replaced Leroy Parris and CLICO has the key campaign financier of the incumbent DLP government.

The possibility exist for banks to further signal discomfort to the market by introducing a negative interest policy.

109 comments

  • Miller
    You are so right.I too want to know if it was failure of regulatory oversight that caused this entire Regional failure from Guyana to the Bahamas.It was wholesale thiefing in Trinidad,Guyana and in Barbados for sure.The JA 4200 miles away must again be reminded the Barbados supervisor moved to the courts to have the lepered thief arrested and both she and the Chief of Police were sent on leave with the knowledge and OK of the PM of Barbados.It will be poetic justice that next year the new minister of justice will have some important people arrested and hauled before the justices.Some of the most brilliant minds in Barbados reside in one outstanding political party.This party will return Barbados to its rightful place in the Region and the Commonwealth of Nations come 2018.Blimmuh!

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  • Well Well & Cut N' Paste At Your Service

    Northern…dont blink I told you, 5 years ago, the same CGI criminal would never had exposed the FSC, not even 1 year ago….but look how in the blink of an eye, times have changed..

    Ha, Ha…was just being his idiot self Miller..he woke up with me on his mind yesterday not realizing I would be ready for him, he thinks this is some game, just like thiefing Leroy Leper and David Thompson fraudulently misrepresenting themselves to clico policyholders, it never occurred to him that there was wholesale theft at clico with government ministers from the PM on down protecting such thefts, dont mind how many times he read it and despite Owen Arthur confessing there was political interference…Ha, Ha is dumb like that

    ….Hal misrepresented his position st the Financial Times and dont realize that companies these days keep their email information on their back up servers for many years after, just for those times when there is any fraud, copy right or other complaints against their current or former employees….and his letter only served to bolster my case of fraud against him, when the company investigates my claims and check their email servers…..that is how dumb Hal Austin is…

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  • millertheanunnaki

    @ Gabriel December 23, 2017 at 7:55 PM
    “The JA 4200 miles away must again be reminded the Barbados supervisor moved to the courts to have the lepered thief arrested and both she and the Chief of Police were sent on leave with the knowledge and OK of the PM of Barbados.”

    What that well-harnessed jackass of a Bajan Limey ‘hold up in a cold north London flat ought to be expressing is his investigative concerns over why was a competent regulator in the form of Mrs. Braithwaite removed from her substantive posts.

    We wish the UK-based ‘know-it-all’ jackass would just stop trying to put himself in the local insurance regulatory seat and just keep to what he is good at; just hauling a load of Greenverbs apologetic bullshit, day in day out, from BU pillar to BU post.

    The UK-based jackass knows only too well that those perpetrators of the CLICO Ponzi scheme along with their ‘politician’ friends and defenders, had they been in the UK, would be spending Xmas behind bars all like now exchanging greetings across the pond with Madoff and Stanford.

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  • Miller

    I know that your reference to the removal of Vernese Brathwaite from her post but I will answer anyway. She was removed because doing her job to the best of her ability might result in one of the people, who finance the DLP, going to jail, plus she was not a DEM. Mind you, the Opposition did not speak out on her behalf because she was not a Bee. The NUPW did not speak out because she was not a DEM.

    Sent from my iPad

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  • Well Well & Cut N' Paste At Your Service

    And all that nasty political gamemanship with the thiefing insurance executives is what have ALL of that scum in both governments now exposed by the same thieves they were protecting,…

    I did not make that up…everyone knows I did not, given the events of the IMF/barbadostoday exposure…it can only go downhill from here.

    Miller…about two weeks ago I told dummy Hal to let the crap he talks on BU about the emails go, I knew what was coming down and actually told him that the emails he sent me and I posted to BU served their purpose, which he should have understood to mean that what we were doing, actually had some benefits…

    …instead of the idiot stay cool and watch it all unravel…since he already screwed up his chance at the best investigative story of his career, being the typical dummy and his own worst ememy, he is trying to upstage and make himself a nuisance.

    I did not make that up either, everyone on BU read his stupid letter from Lloyds which works to my benefit…steupppssss.

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  • Well Well & Cut N' Paste At Your Service

    And all that nasty political gamemanship with the thiefing insurance executives is what have ALL of that scum in both governments now exposed by the same thieves they were protecting,…

    I repeat….because both Harris and Leroy Leper have been extremely close business partners with shared investments for the past 5 years or more…and they both will now be looking to protect their investments and fck the ministers and politicians who took their bribes..because they have become more or less useless to them…, except for Jerome Walcott who should not be making up part of any government because of his conflict of interest shares in Bayview Hospital and Diagnostic Services owned by Harris et al.

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    Like

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