Tuesday 18 December, 2018

Central Bank to lower Securities Reserve Ratio from November 29

Central Bank of Barbados (FILE)

Central Bank of Barbados (FILE)

Banks will soon see a 2.5 per cent ease as their lending power increases in a few days.

The Central Bank of Barbados has reduced the securities reserve ratio for commercial banks from 20% to 17.5%, effective November 29, 2018.

This news came via an economic press release from the Barbados Central Bank. It stated:

"Central Bank Governor Cleviston Haynes announced the change in his remarks at the opening of a half-day workshop, “Debt Exchange – Risks and Opportunities: Leveraging the Jamaican Experience”.

Noting that the previous requirement of 20%, which went into effect on January 1, 2018, was intended to be a temporary measure until Government could strengthen its public finances, Haynes said that the reduction 'reflects the Bank’s commitment to reduce this ratio as Government’s fiscal situation improves' and anticipated that there would be further reductions in the coming months."

What does this mean for the average Joe?

According to the Economic Times, when the central bank wants to increase money supply in the economy, it lowers the reserve ratio. As a result, commercial banks have higher funds to disburse as loans, thereby increasing the money supply in an economy.

What is the Reserve Ratio?

It is the percentage of deposits which commercial banks are required to keep as cash according to the directions of the central bank.

Why is the Reserve Ratio important?

The Economic Times says the reserve ratio is an important tool of the monetary policy of an economy and plays an essential role in regulating the money supply.

 

 

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