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

74 reduction in the limit on outstanding consumer credit. Commercial banks were instructed to raise the minimum savings rate, by one percentage point to eight per cent, and the prime rate, by two percentage points to 13 per cent. The average lending rate went to 15 per cent and the bank rate to 22 per cent, while interest rates on residential and commercial mortgages rose by two percentage points to 12 per cent and 14 per cent, respectively. In addition, commercial banks were required to increase their holdings of Government securities, from 12 per cent to 17 per cent of deposits. Assistance from the IMF Despite the Bank’s call for restraint, commercial bank credit for consumption activity continued to rise, fuelling a continuing decline in foreign reserves. Pressure on the balance of payments also came by way of unidentified foreign exchange outflows, resulting from fears of possible devaluation of the Barbados dollar. As a consequence, during the last quarter of the year the Bank had to resort to foreign borrowing to maintain adequate foreign reserves. It raised $60 million in the Euro- dollar market, drew heavily on its credit lines and resorted to financing from the Caricom and Venezuelan Oil Facilities. 44 The statistics for 1981 tell the grim story. Real GDP declined by nearly two per cent, the first such decrease in six years. Foreign reserves, net of official borrowings, were $37.6 million below the 1980 level and the fiscal deficit, at 8.1% of GDP, was almost three percentage points higher than the figure recorded a year earlier. During the first quarter of 1982, the austerity measures started to bear fruit. As a result of reduced expenditure and some revenue enhancement, the fiscal deficit was considerably lower than that recorded a year earlier. The demand for credit weakened and, with a recovery in sugar receipts and higher foreign capital inflows, foreign reserves stabilised somewhat. However, in the absence of foreign borrowing the forecast still favoured a contraction in real GDP and a balance of payments deficit for the year as a whole. With respect to the balance of payments, the rapid