Bahamian consumers and depositors should brace for an increase in the prime interest rate in the coming years as the COVID-19 economic crisis causes inflation across the region, in particular in the United States which influences much of this nation’s monetary policies, said Chief Executive Officer of the Fidelity Group Gowon Bowe.
Earlier this summer, the US Federal Reserve raised its expectations for inflation this year and indicated that interest rate hikes could come as soon as 2023.
Bowe predicted that while it may take some time for The Bahamas to feel the effects of those actions, they will be felt globally.
“When you see that type of interest rate starting to increase for Bahamians, we have to pay very close attention to the United States. We have the benefit of our dollar being pegged to the United States, but in laymen’s terms that means that our monetary policy, which means interest rate environment, follows that of the United States,” he said.
“The truth of the matter is if the United States is concerned about inflation and starts increasing interest rates, the marketplace has to brace itself because there’s a possibility that we will.
“Now, we have a buffer. The United States interest rates are near zero, our prime rate by the Central Bank is at 4.25 percent. So when you look between those ones, there is a significant buffer before there is any reaction, but I don’t see it for several years because we’re still in economic doldrums globally and I think it would be hard-pressed to increase interest rates.”
The Bahamas has not seen an increase in the prime interest rate for the last 15 years, and it has in fact dropped by two percent over that time.
In terms of what this would mean for borrowers and the banking industry as a whole, Bowe said it depends.
“I know when I say that in The Bahamas that’s taboo depending on who I’m talking to. If I’m talking to the depositors and I say there is a potential increase in interest rates coming, there are smiles all around. If I’m talking to the borrower, then they are certainly going to be concerned. But that’s how you start to control what is excess demand in order to compensate for it. The banking sector or the financial services sector at large, [will have to determine] the role it is going to play in understanding how we become a significant player in production and slow consumption,” he said.
“On the production, it is how are you providing financing to those businesses that are in production, and when I say that I’m not talking about the manufacturer because in The Bahamas we don’t manufacture anything. But it is in terms of providing funding for businesses that have demonstrated that they have excess demand for their products, a cash flow stream that is very healthy and they are saying they need bridge financing to get to the other side. On the consumption side, it is really the responsible consumption. That is persons are really going to want to be borrowing in order to consume and it is helping to coach them through responsible consumption.”
The US is experiencing the biggest rise in consumer prices in 13 years.
The US is The Bahamas’ largest trading partner and as a result, consumer prices have peaked locally as the retail price index increased by 2.7 percent in the first quarter of the year.
The post Expect interest rates to go up, says top banking executive appeared first on The Nassau Guardian.
source https://thenassauguardian.com/expect-interest-rates-to-go-up-says-top-banking-executive/
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