More production, less consumption wanted says B’dos Central Bank

Barbados Central Bank is trying to stimulate credit in the productive sector by focusing monetary policy on reducing the cost of borrowing. But governor of the Central Bank of Barbados, Dr Marion Williams, said the bank would not be encouraging lending for consumption, especially conspicuous consumption. Williams comments were made at a press conference last Thursday. She noted that credit demand by the productive sectors remained low during 2003, and she spoke about the importance of placing greater emphasis on improving productivity and enhancing competitiveness in all industries.

Since interest costs are an important component of overall costs, any programme aimed at improving competitiveness will need to keep those costs under review,” Williams said. She said it was necessary to make our goods more attractive on overseas markets. Domestic exports fell last year by 1.9 percent. An increase in sugar receipts - mainly from exchange rate gains - and an expansion in the sale of miscellaneous products were more than offset by declines in all other categories, Williams said. Stressing the need to grow our expo, the Central Bank governor said the fall in export was not a viable long-term situation, unless the country could get major capital inflows to offset the deficit. However, she said: “Our approach has been general - to have a global setting of rates - but we would want, however operational, to encourage the commercial banks not to concentrate on consumer lending.”

In the last three years, interest rates have been consistently declined, moving from 4.5 to 2.5 percent, which Williams described as fairly significant. The governor, however, said that although a number of banks had offered very attractive terms on consumer items, it did not seem as if these offers had taken off to an extent to become worrisome. “It is manageable and the levels are reasonable. So I wouldn’t say from the perspective of consumer credit that we are in danger of overheating, and certainly not in the productive sector.” Last year, personal sector borrowing rose by $59.9 million for the year, driven by what the Central Bank described as “a sharp expansion” in the last quarter. The figures revealed that credit to the non-financial private sector was up marginally by $16.8 million or 0.6 percent in 2003, following a $86.6 million expansion in 2002 when foreign loans were transferred to the books of a domestic financial entity.