Cent. Bank ups reserve ratio; money tight
While the prime minister was sounding the alarm of tighter fiscal policy, the Central Bank was at the same time slamming on the monetary breaks. To the average Belizean, news of a one percent increase in the reserve requirement is not exactly headline material, but ask anyone with an overdraft at one of the nation’s five commercial banks and you’ll get an earful. What the new regulation means is that for every one hundred dollars in deposits held by a bank, it must set aside twenty in reserve. This is up from the nineteen that was previously required. That means that instead of having eighty-one dollars of every hundred available to lend, it will now have only eighty. While this change seems minor, with a total of more than a billion dollars in the banking system, an additional ten million will now have to be sucked out…likely from someone you know’s pockets. Some banks had been preparing for such a move but others were hit particularly hard. The Belize Bank, with about half the nation’s deposits, was caught especially short and has been eliminating clients’ overdrafts with all the subtlety of a weed whopper. To make matters worse–or better, depending on whether your view is macro or micro–the Central Bank has also placed limits on the amount of money banks can bring in from outside. That figure, except with special permission, can be no more than ten percent of total deposits. Another rule, banning non-residents from holding U.S. dollar deposits in the commercial banks has also shrunk the loan pool. Previously those US accounts counted as part of the overall deposit portfolio; now they are removed from consideration, this further shrinking the overall amount of funds available for lending. While bankers acknowledge that this move against co-mingling was overdue, they plan to seek some modifications to reduce the effects on local liquidity.
Speaking to Central Bank Governor Sidney Campbell late this afternoon, he told News 5 that controlling the reserve requirement is the most effective tool to maintain equilibrium in the monetary system and assure a healthy level of foreign reserves. Campbell admitted that the raising of the reserve ratio will impact the availability of personal loans and those in the distributive sector but he believes that important export industries should not be negatively impacted.
As for how long the tight money situation would last, Campbell would only say that the Central Bank and Technical Advisory Group to the Ministerial Finance Committee would continuously monitor the figures and act accordingly. Commenting on Government’s moves on the fiscal side, he said that he is happy to see that Government was serious about setting financial targets and taking steps to meet them.
