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Governor: Rate Cut ‘Not Influenced’ By S&P’S Junk Action

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank’s governor has refuted charges that yesterday’s 50 basis point interest rate cut was sparked by the Bahamas’ ‘junk’ downgrade, describing the timing as “coincidental” and “not influenced by S&P”.

John Rolle told Tribune Business that the Central Bank’s decision to reduce the Discount Rate was its own, and not prompted by pressure from a Christie administration desperate to counter the Bahamas’ loss of investment grade status.

“The timing of the Central Bank’s decision is coincidental to, and not influenced by, the S&P ratings action,” Mr Rolle said of the 0.5 percentage point cut to the Discount Rate.

“The Bank undertakes its own economic analysis to weigh the timing of policy changes.”

Mr Rolle’s response to e-mailed questions from Tribune Business came after Opposition politicians described the Central Bank’s action as an obvious response to the S&P downgrade that occurred just 48 hours before.

Loretta Butler-Turner, the Opposition’s House of Assembly leader, questioned whether the Central Bank had succumbed to Government pressure and, in so doing, compromised the autonomy and independence it is supposed to enjoy.

“I’ve never seen them react so rapidly other than like this,” Mrs Butler-Turner told Tribune Business. “It’s their job to be very cognisant of what the fall-out could be [from S&P], but the fact they’ve responded so quickly is something we have to question; whether it was done independent of the executive.”

Her suspicions were increased after Bahamas Information Services’ (BIS) deputy director, Elcott Coleby, distributed the Central Bank’s statement to the media, albeit 45 minutes after it appeared on the latter’s website.

“I can’t say it confirms it,” Mrs Butler-Turner said of Mr Coleby’s actions, “but we have to ask the question: Has the Central Bank acceded to the pressures of the executive [the Government] on this.

“I’m just wondering what has caused them to react so quickly.... The only question I would raise at this point, certainly, is have they acted autonomously?

“The fact BIS is involved in what they’ve done, it appears for all intents and purposes that pressure was put upon the Governor and his team of professionals. That’s what it appears to me; that’s what I take away from it.”

Both Mrs Butler-Turner and the FNM’s finance spokesman, K P Turnquest, conceded that the Central Bank’s interest rate cut could benefit the economy and Bahamian people by lowering borrowing and debt servicing costs.

Instead, they are questioning whether the Central Bank has acted for the right reasons, given the impact of S&P’s ‘junk’ downgrade and resulting fall-out from the country’s loss of sovereign ‘investment grade’ status.

“Is it a prudent thing to do? In some respects, it is,” Mrs Butler-Turner said of the Central Bank’s action.

Mr Turnquest, meanwhile, described the 50 basis point Discount Rate reduction as “a positive step and reaction to the downgrade” by S&P.

“There’s no doubt about it; I think we’d be safe to say it is a reaction to that,” he added, “and to take the spotlight off the negative by promoting the positive, and changing the narrative.

“I’m not going to criticise them for that because at this point it is an appropriate response. I think it is a positive thing for businesses, as well as consumers.

“The only risk in this as I see it, the downside, is to depositors, bondholders and savers. Hopefully, it doesn’t spur an increase in consumer lending and borrowing.”

The Opposition politicians’ assessments on the timing were also backed by a financial analyst, speaking to Tribune Business on condition of anonymity, who questioned why the Central Bank had waited until now - two days after S&P’s move, and with two shopping days left before Christmas - to act.

The Central Bank, explaining its rationale for the interest rate cut, said it was designed to enable Bahamian businesses “to take more advantage of growth opportunities in the near to medium term”, likely meaning the projected spin-offs from Baha Mar’s opening and other major resort projects coming on line.

The regulator added that its action was also intended “to provide more support to housing sector investments”, meaning that it hopes the reduction in mortgage costs will spur the domestic housing market.

The analyst, though, said the private sector would have derived maximum benefits from an interest rate reduction in either summer or September/October 2016, when retailers were purchasing Christmas inventory.

This is the first Central Bank rate cut in five-and-a-half years, the last having occurred in June 2011 when the former Ingraham administration was in office.

The analyst pointed out that there had been a consistent clamour from the private sector, ever since then, for the Central Bank to further reduce interest rates/capital costs, and provide monetary stimulus to the economy, yet it had failed to act until now.

Suggesting that the rate cut’s timing “makes no sense”, the analyst told Tribune Business: “The fact of the matter is that this is something they [the Central Bank] should have done a long time ago.

“There were calls four to five years ago to do this, and to do it now when there’s this external pressure.”

They added that the Central Bank had stubbornly resisted calls to follow the US and other major economies in reducing interest rates to record lows, something that the Bahamian private sector felt was contributing to this country’s increasing lack of competitiveness.

“If they wanted to jump start the business community, they could have done it in June/July, or September/October, and allowed them to buy inventory cheaper when they stockpile for Christmas,” the analyst said. “This doesn’t make a lot of sense to me.”

Comments

banker 3 years, 5 months ago

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by banker

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ohdrap4 3 years, 5 months ago

Little Tom Tucker Sings for his supper. What shall we give him? White bread and butter. How shall he cut it Without a knife?

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Well_mudda_take_sic 3 years, 5 months ago

The foreign component of our national debt has already gone well beyond the critical mass point. What The Central Bank has done by cutting the Discount Rate is simply acknowledge that we are now well along the path to a devaluation of the Bahamian dollar. Once a 'soft' currency like the Bahamian dollar becomes of no value to Bahamian savers in an economic environment where there are only very high risk alternative investments, including now real estate that will almost certainly result in losses for most of those investors who foolishly feel compelled to chase higher yields, it is not too long before the roosters come home to roost. Lowering BSD borrowing costs to (i) help keep the government's finances afloat and (ii) force private sector savers to invest (squander) their capital in high risk, typically non-productive and loss making, investment alternatives, does absolutely nothing to put our country on an even keel and everything to speed up the timetable for an inevitable devaluation. Our corrupt Crooked Christie-led PLP government has chosen to take the easy road that so many other failed countries have taken to their ruination.

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Well_mudda_take_sic 3 years, 5 months ago

Hubert Ingraham, Pericles Christie, Julian Francis, James Smith, Michael Halkitis, Wendy Craigg, John Rolle, and of course Sir Snake, are the primary culprits behind the entire financial mess our country finds itself in today. These incompetent buffoons have always put their own very greedy and corrupt personal interests above the interests of the public office(s) they have held or public roles they have played, with very little or no regard whatsoever for the interests of the Bahamian people as a whole.

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TheMadHatter 3 years, 5 months ago

I agree to a large extent with your remark - however, I would point out that dudes #1, #2, and #5 in your list above were all DULY ELECTED by the Bahamian people. So that means they received thousands of votes!!!!!! All blame cannot be put on them - but much must rest upon the shoulders of the voters who had seen them in action prior to election day. In other words, perhaps leave the "w" off of your last word in your paragraph.

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TheMadHatter 3 years, 5 months ago

People say that the PLP may win re-election in 2017 due to split votes among the opposition. I understand the mathematics of that 100%, having a professional background in math. However, the math also requires that there at least be a certain (non-zero) percentage of people that do indeed vote for the PLP.

I have not heard of a large group of escapees from Sandilands, so I must conclude there are a goodly number of persons out there who, even now, would choose voluntarily to cast their vote for this crew yet again.

If there are enough of them, to elect them even with a split opposition, then we simply deserve to die as a country - to have our currency devalued, and to continue to drift downward. It is simply the will of the people. I believe in democracy, and I say if the people want more outside toilets, then for Christ's sake give them to them. Gotta watch those rising Amazon dot com prices though. That ga be funny for people to learn.. Just like most Bahamians didn't understand the difference between Opposition Leader in the House, and Leader of a private political party - they ga learn why the $9.99 tingum on Amazon soon ga cost $17.35

TheMadHatter

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ohdrap4 3 years, 5 months ago

these examples, amazon and miami, while true, are not representative of the impact of devaluation on the common man.

the macaroni and cheese and evapoorated milk is going to double too. then they will blame supervalue

i mentioned devaluation a colleague and her response was. Are they going to adjust the salaries? Of course not, I said. She made a really worried face at the prospect of her earning being cut in half.

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MonkeeDoo 3 years, 5 months ago

Who in the Bahamas would trust John Rolle. Everything is ticketyboo my arse !!!

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