Central Bank gives banks a lending hand

The move comes as the economy is seemingly grinding to a halt, with growth showing zero to one percent in 2009 and indicators pointing to a deceleration.

One month ago, with economic activity slowing and credit declining sharply, the Central Bank by reducing the repo rate by 25 basis points to 8.5 percent had hoped to spark commercial bank lending but this lost traction.

Th repo rate is the rate which the Central Bank charges to keep the overnight funds of commercial banks and is a key indicator of lending rates.

In its most recent announcement on the economy, the Central Bank said over the last three months, the liquidity in the financial system has been unusually high with excess reserves averaging around $2.2 billion but credit growth has remained subdued.

Williams, speaking at the launch of the Monetary Policy Report, at the Central Bank auditorium on Thursday took a jab at the commercial banks and noted that excess reserves should have prompted a significant reduction in their lending rates.

“If excess liquidity is so high, then why are bank lending rates not coming down? ” he said.

He cautioned however that even a sizable reduction in bank lending rates may not prompt the desired credit response, if consumer and business confidence remains at current levels. But even as the Central Bank moves to ramp up economic activity, headline inflation, declined to 11.3 percent in March, from 11.7 percent in February 2009, a .04 percent drop.

In the twelve months to February 2009, growth in private sector credit slowed to 7.1 percent from 8.4 percent in January 2009, and 18.7 percent a year earlier, it was noted.