By NEIL HARTNELL
Tribune Business Editor
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.”