“Comfortable” foreign exchange reserves of $ 2.26 billion, assures Central Bank governor – Eye Witness News


But he notes that the government will have “significant” financing needs in the future.

NASSAU, BAHAMAS – The country’s foreign exchange reserves to date stand at a “comfortable” $ 2.26 billion, the Central Bank revealed yesterday, noting that demand for foreign currency, mainly for imports of goods and services, fell 14%.

According to Central Bank Governor John Rolle, foreign exchange reserves contracted during the quarter from $ 126 million to $ 2.26 billion at the end of March.

Rolle noted that these were “very comfortable” stocks to absorb the declines expected for the remainder of 2021.

“Thereafter, the Bahamian dollar fixed exchange rate hedge will still be robust,” Rolle said.

“There has traditionally been less negative pressure on reserves in the first quarter of the year – with 2021 not being any different – because on a seasonal basis, the peak in private spending typically occurs in the later months of the year. ‘year. This helped to explain some of the]eased pressures seen in the first quarter.

Central Bank Governor John Rolle.

“So far, credit to the private sector has not generated a strong exchange rate impulse, because even in the ranges of selective accommodation for new financing that the Central Bank has sanctioned, credit institutions are still very limited. in today’s risky environment.

“However, public sector spending which has been a source of stabilizing domestic demand has also stimulated significant use of foreign exchange.”

Rolle noted that the regulator’s efforts to hold onto foreign currency amid the pandemic have provided a cushion of $ 350 million to $ 500 million.

“The impact was real in terms of the cushion. Since then, the government, with its fundraising activities, has occasionally provided some replenishment of the reserve, ”he said.

“When you add up those numbers, you see these types of levels on reserves. Of course, without these measures, reserves would be a few hundred million dollars below the $ 2 billion mark at this point.

Rolle noted that commercial banks’ foreign currency purchases from the private sector, which is strongly correlated with export activity, declined by about 30% compared to the first quarter of 2020.

He noted: “The demand for the use of foreign exchange, mainly for imports of goods and services, has fallen by 14 percent. As the tourism sector recovers, currency pressures will ease further compared to 2020.

“While conditions will still justify a significant portion of foreign currency borrowing to finance the government deficit, the portion that the government is able to sustainably increase in Bahamian dollars is increasing.

“There is also room for maneuver maintained in the reserve outlook to absorb planned domestic capital spending for the continued reconstruction of housing and infrastructure in hurricane-damaged areas of the Bahamas.”

Rolle added: “The Central Bank will continue to closely monitor foreign exchange market conditions to maintain a sustainable outlook for reserves. As the certainty of the outlook improves, the bank will actively review currency conservation measures to enable a resumption of market access for investment currencies.

“In addition, the focus will be maintained over the medium term on directing banks’ liquidity and capital to lower levels, which would reduce the risks associated with financial stability.”

Regarding the near-term outlook, Rolle noted that the economy is only expected to grow gradually in 2021, with much healthier gains in 2022.

“However, the uncertainty is also higher in the short term. In particular, both access to vaccines and the pace of vaccination continue to put global tourism at risk of further setbacks, ”he said.

“The upside potential for the Bahamas is the next advancement in the United States, but the downside risk is less immediate progress inside the Bahamas with inoculation and containment.”

He added: “In the short term, the central bank anticipates only a marginal expansion in domestic credit. Therefore, liquidity is expected to remain at high levels in the banking system. On a more positive note, lenders will start using the credit bureau during 2021, which will give more confidence in the quality of new loans that may be issued. “

The central bank governor yesterday admitted that the government will have “significant” financing needs in the future, noting that the government will appeal to the private sector to help it repay the debt.

“The most important message at this point is that from a funding point of view, the government will still have significant needs,” he said.

“I am not basing myself on anything that I saw during the preparation of the government; it’s just the reality.

“The government will have significant financing needs, but will have more leeway to find part of this financing within the local economy, but will have to raise part of it abroad to maintain the balance in terms stimulus that this type of financing creates for the use of foreign currency.

“The burden on the government will always be significant in terms of deficit management.”

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