BASSETERRE, St. Kitts – The St. Kitts and Nevis based Eastern Caribbean Central Bank (ECCB) will maintain the current deposit and discount rates.
The Monetary Council of the Eastern Caribbean Central Bank at its meeting last Friday in Basseterre directed the Central Bank to maintain the minimum savings deposit rate at 3.0 per cent and the Central Bank’s discount rate at 6.5 per cent.
“Council, in assessing the monetary and credit conditions, noted that the fundamental question in respect of monetary policy actions at this time is two-fold. In the first instance, whether a lowering of the savings rate and/or discount rate would lead to a reduction in commercial bank lending rates and by what magnitude? Secondly, whether this reduction in lending rates would lead to an increase in growth-inducing credit?” the Communiqué issued following the 71st Meeting of the Monetary Council disclosed.
It added that the Council concluded that the empirical evidence provided from previous rate cuts coupled with the current environmental conditions, including the elevated credit risk, did not support a significantly positive response in either case and therefore such expansionary monetary policy actions would have little impact on steering the regional economy out of the current economic slump.
The Monetary Council noted that the ECCB continues to pursue a coordinated resolution strategy in addressing the challenges facing the financial sector to ensure the continued resilience of the system.
Council supported the emphasis being given to actions related to the single financial space; the legal and regulatory framework; the supervisory regime; liquidity management; the resolution mechanism and a deposit insurance scheme.
Council noted that policy decisions during the review period, in respect of the design and implementation of risk mitigation systems, had served to alleviate some of the downside risks to stability and also noted in particular that the Resolution Trust Corporation had been incorporated.
The Council considered the elements critical to the success of financial sector reform, in the continuing attempt to address the issues which could influence the future development of the ECCU.
It approved the vision for the financial sector as follows:
(i) The urgent establishment of the single financial space as set out in the new Treaty of Basseterre creating the OECS Economic Union under Article 4.1 (e) which states – “to establish the Economic Union as a single economic and financial space”;
(ii) A restructured indigenous banking sector to fulfill the four policy objectives as set out in the Policy Statement on Indigenous Banks approved by the Council at its 1st Special Meeting for 2011 held on 28 July;
(iii) A consolidated insurance sector and the implementation of enhanced regulations and prudential requirements as recommended by the Core Committee on Insurance and supported by the Ministerial Subcommittee on Insurance;
(iv) A rationalised credit union sector to improve viability and operating under an enhanced national regulatory mechanism;
(v) The completion of money and capital market institutions including the Eastern Caribbean Enterprise Fund to facilitate investors; the Eastern Caribbean Unit Trust catering to a wide range of savers; and credit bureaus to provide the information base for sophisticated and efficient markets.
Council recommended that diagnostics for the insurance and credit union sectors should be conducted as was done for the banking sector, to establish the status of individual entities in these sectors.
Council approved the institutional arrangements for coordinating the implementation of financial sector reform in the ECCU.
