May 2004 Financial News

LOW RATES SHOULD PROMOTE INVESTMENT

May 04, 2004

Source: Barbados Advocate

By Alex Fergusson
LOW interest rates in Barbados’ banking system should be stimulating more investment. This is the view of Robert Le Hunte, managing director of the Barbados National Bank (BNB). In a telephone interview, Le Hunte told Business Monday that the current lending and borrowing rates in Barbados were some of the lowest in years and explained that the drop was a response to excess liquidity in the economy.

Interest rates were lowered, he explains, to stimulate investment of the excess cash. Low interest rates and high liquidity are not peculiar to Barbados at this time, however.

Similar conditions exist in much of the region and the world, a situation generated in part by conditions in the United States. In Barbados, developments like the sale of shares in BNB and the then Barbados Mutual (now Sagicor Financial Corporation) have also brought money into the country, further extending liquidity and lowering interest rates.

Considering public and private sector development plans, high liquidity levels can be expected to continue into the short and medium term Le Hunte said.

These conditions provide good opportunities for investment, Le Hunte said, and suggests that people planning projects and looking for capital to invest should go ahead and take advantage of the low interest rates. He said that BNB does not just want to stimulate loan activity, but aims to enhance the productive sector through its loans. This, he explained, is why BNB’s Small Business Unit has been set up. While this is a good time for people to invest in their projects, low interest rates present some challenges for people with fixed incomes who are looking to save. The low interest rates mean that people can do a lot better than putting their money into regular savings accounts. One alternative, Le Hunte advises, is the stock market. He admits that trading in stocks entails some risk, but notes that risk and returns go together. Le Hunte says Barbados has some good stocks to offer and adds that since the Central Bank has allowed Barbadians to trade on other regional stock markets as well, options for investors are even better. Le Hunte concedes though, that so far, Barbados has not had a strong stock investing culture, especially when compared to neighbours Trinidad and Jamaica. This is largely a function of different levels of exposure to stock market activity, he surmises. In Jamaica and Trinidad, the populations were exposed to alternative means of investment almost 20 years earlier than Barbadians were. As a result, they are now more willing to buy stocks and mutual funds than Barbadians are.

In the early development of those markets, said Le Hunte, the same reticence prevailed that now exists in Barbados. In recent times, however, people have been seeing that money can be made in stocks.

With the takeover of BNB, for example, shares were offered at a low rate and people who purchased them last year made about 100 per cent return, Le Hunte stated. People who bought other shares, like Sagicor’s, also would have made money, he stated.

This kind of activity has only recently come about in Barbados, but Le Hunte predicted that people will be more willing to participate the next time new or low priced shares become available.

Even if people do not feel competent to assess and invest in the stock market, Le Hunte said, they can invest in mutual funds.

These funds are less risky than the stock market, but have correspondingly lower returns. However, they can offer significantly better returns than savings accounts can, even if they are not guaranteed. Le Hunte said that people typically invest in these funds to get tax breaks.