Both Sides of The Coin: The Story of The Central Bank of Barbados 1972-2017

224 minimum interest rate on savings deposits, from four per cent to six per cent, and the average lending rate from 10.5 per cent to 12.5 per cent. After another particularly heavy drop in the third quarter of 1989, the foreign reserves stabilised somewhat for the rest of the year. However, in light of the sharp increase in merchandise imports and capital outflows during the year, the total loss in reserves for 1989 was $85.2 million. The 1989 Annual Report called for “... effective measures to arrest the strong growth in aggregate expenditure and to dampen the import surge”. So significant a fall in foreign reserves was bound to impact on macroeconomic management. Not surprisingly, early in 1990 the Bank collaborated with the Ministry of Finance and Economic Affairs in the formation of the Joint Economic Group (JEG) to monitor the situation. The Central Bank representation on the JEG included the governor, his deputies, the senior adviser (economics), and the management of the Research Department. The Ministry of Finance and Economic Affairs was represented by the DFP, the permanent secretaries for economic affairs and finance and the chief budget analyst. The JEG normally met every other Monday afternoon in the Bank's Board Room. The formation of this body drew attention to the crucial role of fiscal policy in both the evolution and solution of the economic difficulties. Moreover, it emphasised the necessity to promote a holistic approach to economic oversight and enabled the Bank to exercise some leverage in the formulation of fiscal policy. Some early policy options During early 1990, there was support in the Bank for a fully home- grown stabilisation programme, since it was felt that an IMF sponsored arrangement would be subject to harsh conditionalities. As the foreign exchange situation worsened, the Bank's technicians set about to devise a broad-based set of remedial measures. In September 1990, the Board recommended an eight-point strategy to the minister of finance. To dampen the private sector’s demand for credit, interest rates (in particular mortgage rates) would be raised by two percentage points. Measures to