Central Bank of Barbados Offering
Alternative
Investment Instruments
Following the Removal of Minimum Savings Rate
By Sherri A. Bishop, Currency Officer
O
n April 7, the Central Bank of Barbados announced the
removal of the minimum savings rate, signaling the end of a
decades-long policy of structured interest rates on loans and
deposits.
Maintaining an administratively determined deposit interest
rate was creating strain in other areas of the financial sector. It
led to inflated Treasury Bill rates as commercial banks sought
to use the gains from their investments to offset the costs of
paying interest to thousands of account holders, in a market
that is experiencing excess liquidity. It also resulted in higher
mortgage and loan rates, thereby making it more difficult for
ordinary Barbadians to own homes or start businesses.
After careful consideration, the Central Bank determined
that deregulating interest rates and allowing market forces to
determine what commercial banks offer their customers, was
the appropriate step to take.
In making this decision, the Bank has not lost sight of the
potential impact on lower and middle-income Barbadians, who
relied on the interest income their savings accounts generated
4
to supplement their earnings. Almost immediately after the
island’s five commercial banks began making adjustments to
their rates, the Central Bank re-launched its Savings Bonds
programme, highlighting a government security targeted for
the benefit of the average saver that it first introduced in the
early 1980s. The Bank is currently offering a yield of 5.5% at
maturity, more than double what commercial banks were
offering before the removal of the minimum deposit rate.
While the focus of its promotional efforts is currently on
Savings Bonds – understandably so, since this particular
instrument works like a savings account in that holde