Jul 2004 Financial News

3% drop in banks' reserve requirements

Jul 26, 2004

In a move that could bring even cheaper rates for banking customers, the Central Bank is once again lowering the reserve requirements for commercial banks.

A three per cent reduction is scheduled to be implemented by the end of this month or early August by the latest, Central Bank governor Ewart Williams announced yesterday.

Last October the Bank reduced the requirement from 18 per cent to 14 per cent.

Another two-point reduction will be implemented at the end of 2004 or early 2005, bringing the requirement for commercial banks down to nine per cent, the same rate for non-banks.

It is an attempt to reduce intermediation margins, that is, the difference between lending and deposit rates, Williams said yesterday.

Since the four per cent cut, the prime lending rate of commercial banks has declined by an average of two per cent to 9.5 per cent now.

Also, the spread between lending and deposit rates has declined to 7.36 per cent.

But this is still high by international standards, and could come down more, Williams told reporters at a press briefing held at the central Bank tower in Port of Spain yesterday.

The Central Bank will meet with the heads of commercial banks next week to discuss the cut in the reserve requirement.

But an immediate reserve requirement reduction would inject extra liquidity of about $540 million into the financial system.

This means that the Bank will have to initiate discussions on a special TT dollar Government bond issue to absorb this liquidity released by the reduction in the reserve requirement.

This is expected to go to Cabinet shortly.

In the meantime, inflation has actually declined from 4.9 per cent to about three per cent in the first few months of this year.

Employment data suggests the number of employed people fell slightly compared to the last quarter of 2003.

Source: http://www.trinidadexpress.com/index.pl/article_business?id=30449891