THE Opposition UNC has called on the Central Bank to explain why the reserve requirement for commercial banks was changed recently.
Oropouche West MP Davendranath Tancoo made the call on July 23.
In a letter to the editor on July 22, former Central Bank deputy governor Dr Terrence Farrell questioned whether a decision by the bank to reduce the cash reserve requirement for commercial banks was to facilitate increased government borrowing.
Farrell said the decision to reduce the cash reserve requirement for commercial banks by four percentage points releases almost $4 billion from the cash reserves.
"This marks a significant relaxation in monetary policy which is likely, other things being equal, to expand credit and increase the demand for foreign exchange when our foreign-exchange reserves are already under stress and, given the outlook for natural gas and petrochemicals exports, will remain stressed for the foreseeable future."
Farrell was concerned whether "monetary policy has been relaxed significantly merely to accommodate increased government borrowing."
He admitted that he could be wrong about this, but added, "I have no doubt we will soon find out."
In a statement, Tancoo said, “Central Bank must now come clean with the population. Tell us what changed within the month to warrant the change in the reserve requirement so that the population will learn the true state of our economy."
He referred to a July 19 statement from the bank which announced that the cash reserve requirement for commercial banks had been reduced from 14 to ten per cent.
Tancoo said, “Just three weeks ago, the Central Bank issued a monetary policy announcement where, in maintaining the repo rate at 3.5 per cent, the authority stated that 'financial sector liquidity remained ample during the second quarter of 2024,' as well as 'domestically, the low level of inflation and buoyancy of credit were supportive of the ongoing economic recovery'."
He claimed these two statements appeared contradictory and send mixed signals to anyone who is interested in the macroeconomy.
Tancoo asked what commercial banks would do with the $4 billion which Farrell mentioned in his letter.
"Is the government hiding some upcoming mega-investment plan (for which) they are hoping to entice commercial banks’ buy-in?”
He argued that past and current actions by the bank and Finance Minister Colm Imbert have undermined investor confidence in the economy.
"We are now reaping the whirlwind where the population (has) suffered as a result of poor policies. Absent is any real policy prescription from the government to generate new revenue streams. It is almost as if the Government, having already indebted the population to the tune of billions by increased borrowing, is now forcing the population into further debt.”
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