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

241 In 2013, the Bank made the 3-month Treasury Bill rate its benchmark and removed the floor on the deposit interest rate, except for savings deposits of private individuals and non-profit entities. This process was completed in April 2015 when the Bank ceased to set a minimum savings deposit rate, and allowed rates to be market determined. When necessary, the Bank intervened in the market in an effort to bring down the Treasury Bill rate. The Bank’s other policy instruments remained unchanged during 2015 and 2016. The securities reserve requirement was 10 percent, and the cash reserve requirements were 5 percent and 2 percent for domestic and foreign deposits, respectively. Financing for Government (a)Treasury Bills Between 2008 and 2010, the Bank’s year-end holdings of Treasury Bills did not vary by much and it held only $20 million by the end of 2010. This situation changed in 2011 when liquidity in the banking system tightened during the second half of the year, prompting the Bank to purchase $30 million in Bills from the banks and to participate in primary issues to ensure that financial markets remained stable. The Bank also temporarily raised the limit on its holdings of primary Government securities from $120 million to $250 million as a precautionary measure related to the uncertainty of flows to Government. With this change in policy, larger fiscal deficits and substantial excess liquidity in commercial banks, the Bank became more active in the primary market. Accordingly, its year-end Treasury Bill holdings rose from $148.7 million in 2011 to $1.1 billion at the end of 2016. During 2016, the Bank also switched $205 million from Treasury Bills into medium-term securities. (b) Debentures, Treasury Notes and Savings Bonds Since it is fiscal agent for the Government of Barbados, the Bank issues Treasury Notes, Debentures and Savings Bonds as a means of raising funds and managing domestic liquidity. Treasury Notes have a maturity of up to 10 years with Debentures having a maturity of above 10 years. Savings Bonds have a maturity of five years. During the period under review, the Bank issued significant amounts of these instruments. Chapter 5: Some Notable Developments