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

45 Interest rate policy When the Bank was established, determination over interest rates was vested in the minister of finance under the provisions of the Rate of Interest Act 1970-47. Section 36(1) of the Central Bank Act gave the Bank the authority to regulate interest rates, with the approval of the minister. At the end of September 1973, the maximum interest rate on deposits was fixed at eight per cent. The Bank’s first attempt to manipulate interest rates took place early in October 1973, when the rates were allowed to float, reaching as high as 11 per cent. However, by mid-month interest rate ceilings were re-introduced based on deposit size; eight per cent was earned on deposits of $10,000 and under, nine per cent on deposits between $10,000 and $25,000 and 10 per cent on deposits over $25,000. Reserve requirements Substantive Central Bank monetary policy dates from the issue of the Barbados currency on December 3, 1973. The Annual Report of 1973 notes that “moral suasion had largely failed to convince the commercial banks that the proportion of lending to the productive sectors ... should be increased at the expense of the personal and distributive sectors” (p.10). The Bank decided that firmer action was needed and used Chapter 2: The Early Years: 1972 - 1975 Cash Reserves Ratio Treasury Bill Requirement Debenture Requirement 2.0 1.0 N.A. 4.0 6.0 N.A. 1975 1973 1974 TABLE 3 CASH RESERVES AND SECURITY REQUIREMENTS AT YEAR-END (%) Source: Central Bank of Barbados, Chronicle of Central Bank Policy, 1972 - 2004. 6.0 6.0 3.0