Barbados to focus on treasury rates instead of deposit rate

    The Central Bank of Barbados (CBB) is launching a new approach to influencing interest rates by intervening directly in the market for Treasury bills instead of using the minimum deposit rate as a guide to affecting commercial banks' lending rates and thus economic activity.
    The rationale behind the new policy was unveiled in a CBB working paper from last month  - Central bank intervention and interest rate policy in Barbados - that laid out the limitations of using interest rates to control inflation in a country like Barbados where 80 percent of inflation is imported.
    "It has been the experience in Barbados that monetary policy cannot relieve any pressure that might aggravate imported inflation; for instance, it will not achieve low domestic inflation rates in an environment where international oil and commodity inflation is high," the paper said.
    Under the new policy, which will begin on April 18, the CBB said it would "from time to time intervene actively in the Treasury Bill market to influence the average rate at which the bills are sold."
    The coupons on all longer-dated government securities will be priced at an appropriate premium over the Treasury bill rate and the central bank will publish a quarterly yield curve to provide guidance to the market.
    "With the introduction of this policy, the minimum deposit rate will no longer be used for interest rate guidance," the CBB said.