The Tribune

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

A FORMER Cabinet minister yesterday said “there is no benefit” from the Central Bank raising local interest rates to fight inflation because rising prices are largely “imported” by The Bahamas.

Zhivargo Laing, ex-minister of state for finance in the last Ingraham administration, told the Bahamas Institute of Chartered Accountants (BICA) week seminars that inflation is driven by external forces that cannot be countered by Bahamian monetary policy.

While the US Federal Reserve and other developed country central banks have raised their own domestic interest rates to increase the cost of borrowed capital, and thus cool down consumer demand, he added that the most Bahamian policymakers can do is try to “mitigate” inflation’s impact on the most vulnerable in society.

“This is a short-term thing. It will play itself out,” Mr Laing said. “The inflation we have in The Bahamas is imported, and there is very little policy makers can do about it.” Asked about the implications if the Central Bank were to raise its discount rate, and Bahamian Prime, with the latter setting the benchmark for local commercial bank lending rates, Mr Laing said: “I can’t see any justification for moving the prime rate upward, and I don’t see what the benefit would be.

“On the one hand, if you move the prime rate up then you increase mortgage rates, which is going to make it more expensive for you and most of your consumers. On the other hand, may be some savers will get some opportunities.”

John Rolle, the Central Bank’s governor, previously said raising interest rates in the Bahamian context is more a tool to dampen import demand and protect the external reserves that support the one:one currency peg with the US dollar rather than fight inflation.

Mr Laing yesterday, looking at the impact if Bahamian prime was raised, said: “So you’ve just put a shock on the system that’s not likely to be reversible in the same period of time. So I don’t see that as sensible policy. I trust the wisdom of the Central Bank technicians. I don’t see that they are going to do it.

“I don’t know that a decrease will be justifiable now either, because you have an economy that is recovering quite nicely and even growing at extraordinary levels. Maybe when we get back after pre-pandemic economic activity, if the growth remains at 1 percent and returns or maybe even negative, you could look at something like that. But I don’t see that being justified…”

Mr Laing acknowledged that it was difficult for policymakers not to take action when they were being criticised for failing to protect Bahamians from something over which they have no control.