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Communiqué
Of The 61st Meeting Of The Monetary Council, St Kitts And
Nevis, 8 February 2008
February 11, 2008: The sixty-first meeting of the
Monetary Council of the Eastern Caribbean Central Bank (ECCB)
was held at the ECCB Headquarters in St Kitts and Nevis on 8
February 2008 under the chairmanship of the Honourable
Victor Banks, Minister of Finance of Anguilla.
Council received the Governor’s Report on Monetary and
Credit Conditions in accordance with Article 7(2) of the
Eastern Caribbean Central Bank Agreement 1983. The report
outlined developments in monetary and credit conditions in
the 12 months ended October 2007. It examined the main
indicators of exchange rate stability and critically
assessed the factors that support and or threaten the
stability of the system.
The report accordingly discussed developments in domestic
and global interest rates, developments in domestic credit,
the net foreign assets of the system, the fiscal operations
of member governments, the recent performance in the real
sector and other key macroeconomic and financial indicators.
The report also gave the Central Bank’s perspective on
anticipated developments in these indicators for the first
quarter in 2008.
1.0 Monetary and Credit Conditions
Council noted in particular the following developments:
• Rapid expansion in deposits in the banking system
• Continued robust growth in credit
• A relatively high level of commercial bank liquidity
• Declines in commercial bank lending rates in general
• A strong ECCU net foreign assets position
• An improvement in the international price competitiveness
of the ECCU reflecting the depreciation in the US dollar,
the anchor currency
• Continued inflationary concerns
2.0 Recent Macroeconomic Developments and Short-term
Outlook
Council also noted the following:
• Economic activity in the ECCU continued to expand, though
at a slower rate than in the corresponding period of the
previous year.
• Growth in 2007 was underpinned primarily by activity in
the construction and transport sectors.
• The slowdown in growth in the ECCU economies is expected
to continue in 2008. Growth will be driven largely by
construction activity.
• Prospects for the major foreign exchange earner, tourism,
will be influenced to some extent by the projected slowdown
in the USA economy but the continued depreciation in the US
dollar should have a positive impact on visitors from
Europe.
• Monetary and credit conditions are expected to remain
favourable on balance.
3.0 Monetary and Credit Policy
Council, in light of the monetary and credit conditions
which prevailed in the 12 months ended October 2007 and the
projected developments in these conditions and economic
activity for the first quarter of 2008, agreed to maintain
the Central Bank’s administered interest rates as follows:
i. The minimum rate of interest on savings deposits at 3.0
per cent.
ii. The Central Bank’s discount rate at 6.5 per cent.
Council noted that critical to the continued credibility of
the exchange rate regime were the underlying movements in
the real effective exchange rate (REER) and an adequacy of
foreign assets to support the currency. Council therefore
noted the fall in the REER, reflecting the depreciation in
the US dollar, which would have served to boost the region’s
international competitiveness and particularly the tourism
product in non-US markets. Council further noted the upward
trend in the ratio of foreign reserves to demand liabilities
of the Bank which enhanced the stability of the currency.
4.0 Financial Sector Stability
Council acknowledged that financial sector stability was as
a critical facet in preserving the overall stability of the
monetary arrangement.
Council noted that the ECCU’s commercial banking system was
assessed as generally stable over the period but agreed that
there was still the need for continued vigilance and support
from member countries in issuing the required regulations to
facilitate the effective supervision of banks.
Council discussed the status of operations of the Single
Regulatory Units (SRUs) in member countries which are
intended to regulate and supervise non-bank financial
institutions which do not fall under the ambit of the
Central Bank, as stipulated in the Banking Act.
Council acknowledged the critical importance to the
stability of the financial system of filling the regulatory
gaps in the non-bank sector. This would give confidence to
the public that their assets would be protected if invested
in these institutions. Council accordingly gave their strong
commitment to urge member governments which had not yet done
so, to pass the relevant legislation to put the SRUs into
operation.
5.0 Fiscal Support for Currency Stability
Council, recognizing that fiscal prudence is a key factor
underpinning a fixed exchange rate system agreed that, in
light of the current high levels of debt and fiscal
imbalances, member governments should be urged to continue
their efforts at fiscal consolidation. Council noted that
this was necessary in order to reduce the vulnerability of
the countries to external shocks.
Council noted that the debt to GDP ratio for the region fell
over the period 2004-2007 from 115 per cent to 97 per cent,
but was still high. Council accordingly agreed to recommend
to member governments the publication of debt targets within
the context of the countries’ debt strategies and their
projected economic growth.
Council, acknowledging the need for improved debt management
practices in member countries, agreed that member
governments should be urged to make more active use of the
Regional Government Securities Market for their financing
needs in view of the relatively lower costs.
6.0 Policy Responses to increases in Consumer Prices
Council considered the joint report by the ECCB and the OECS
Inflation Working Group (IWG) comprised of officials of the
public sector at the national level, the OECS and the ECCB,
on the phenomenon of high and rising prices in the member
countries.
Council noted that there were strong indications that the
inflationary pressures were largely the result of the global
aggregate demand shock which had impacted commodity prices,
particularly, oil, metal and food. Council further noted
that the depreciation of the US dollar was also a
contributory factor and to a lesser extent, domestic factors
arising in part from the lack of competition in the
distribution system.
Council accepted the view that since the root cause of the
inflation was largely exogenous, the optimal interventions
would have to be targeted at enhancing the resilience of the
economies to external shocks.
Council accordingly noted the policy initiatives being
undertaken by member countries to date and agreed to
recommend to member governments the following:
Short-term Initiatives
• Public awareness campaigns to educate the general public
on the causes of inflation as well as to shed light on how
the inflation rate is calculated;
• Programmes to assist the most vulnerable groups in
society;
• Measures aimed at promoting improved local agricultural
production in order to be better able to supply both
households and the hotel sector.
Medium to long - term initiatives
• Bulk purchasing of commodities at an OECS level in a
similar manner to that currently used for the joint
purchasing of pharmaceuticals under the OECS Pharmaceuticals
Procurement Service;
• A local and regional energy policy geared at conserving
energy;
• Greater flexibility in the labour markets within the ECCU
to allow for the free movement of skilled labour which would
help to contain inflation caused by wage pressures;
• Increases in productivity, particularly labour
productivity by enhancing the skills of workers;
• The establishment of Tripartite Committees, where they do
not exist, comprising representatives of the public sector,
the private sector and labour unions to discuss issues
related to wages, prices and productivity;
• A global commodity information service to provide better
trade information to importers which would facilitate
negotiations with oversees suppliers;
• Establishment of an OECS Distribution and Transportation
Company (ODTC) to address the deficiencies in inter-island
trade by forging greater distributional links throughout the
islands and providing fast and reliable transportation
services for goods.
Council welcomed the further work which would be undertaken
in collaboration with the IWG to conduct research on the
methodological issues in the compilation of consumer price
indices in the ECCU, with a view to making recommendations
for improvements.
7.0 Pension and Pension Administration Reform Commission
Council noted that the Pension Administration Reform
Commission which was established to examine the pension
arrangements in the ECCU and to make recommendations for
reform had commenced operation in February 2007.
The Council further noted that it was the intention of the
Commission to consider the pension reform programme in the
context of the OECS Economic Union and that the Commission
would benefit from research by technical personnel.
Council approved the action plan for the activities of the
Pension and Pension Administration Reform Commission which
was presented to the meeting.
8.0 Date and Venue of the Next Meeting
Council agreed that the next meeting of the Monetary Council
would be held in Antigua and Barbuda on 18 July 2008.
ATTENDANCE
Council members attending the meeting were:
• The Honourable Victor Banks, Minister of Finance, Anguilla
(Chairman)
• Dr the Honourable Errol Cort, Minister of Finance, Antigua
and Barbuda
• The Honourable Roosevelt Skerrit, Prime Minister and
Ministry of Finance, Commonwealth of Dominica
• Dr the Honourable Lowell Lewis, Chief Minister and
Minister of Finance, Montserrat
• The Honourable Stephenson King, Prime Minister and
Minister of Finance, Saint Lucia
• Mr Timothy Antoine, Permanent Secretary, Ministry of
Finance, Grenada (Alternate Member)
• Honourable Nigel Carty, Minister of State to Finance,
Sustainable Development Information and Technology, Prime
Ministers’ Office, St Kitts and Nevis (Temporary Alternate
Member)
