Bahamian business leaders yesterday told The Tribune a cut in the Bahamian prime interest rate of as much as 2 percent could have both positive and negative effects, stimulating consumer spending and business activity to enable the economy to escape from its current slump, but also raising and creating pressure on the foreign reserves.
In an interview with The Tribune, Brian Nutt, the Bahamas Employers Confederation’s president said a cut in in the prime rate could boost the economy by making it more attractive for business owners to borrow money and invest in their business through capital expenditure programmes.
Potential home owners might also be encouraged to invest in the construction of homes or take out mortgages on their desired property, as the cost of such loans would decrease. However, Mr. Nutt said one possible negative effect of an interest rate cut by the Central Bank of The Bahamas would be that Bahamians – generally low savers – would be encouraged to save even less.
Terry Hilts, First Caribbean International (Bahamas) retail director for the Northern Caribbean agreed that a drop in the prime rate could also impact the economy negatively.
“A drop in the lending rate could be taken as a signal to increase consumer spending, and this would certainly put pressure on the Bahamas’ external reserves,” he explained.
Mr. Hilts said that what he thinks the Bahamas currently needs most is a greater flow of foreign capital investment to stimulate the economy, while the current foreign reserve position is maintained.
The reserve position dictates the rate of exchange for the Bahamian dollar, helping to keep its one-on-one peg with the US dollar.
Mr. Hilts also said Fidelity’s suggestion had some merit. More Bahamians would be able to qualify for loans and the real estate sector would be stimulated.
Marlon Johnson, corporate secretary at the Small Business Association of The Bahamas, yesterday told The Tribune that while the organisation’s members supported any reduction in cost of capital, a cut in the prime interest rate would not have a significant impact for them as the banking sector was reluctant to lend funds to small companies believing they posed a higher credit risk.
Examining the issue from a retail perspective, Frank Comito, executive director of the Nassau and Paradise Island Tourism Development Board, said a cut in the prime interest rate would be extremely helpful to Bahamian businesses.
Mr. Comito cited the June survey carried out by BECon and other private sector organistaions, which found a large number of companies were operating at a loss. And whilefirms have to gear up for Christmas in the retail, attractions and excursions businesses, with the economy at such a low point retailers have had to shoulder the soft period, he said.
“Any kind of reduced cost through a lower rate would certainly be beneficial and in some cases may even spark capital investment and that’s important. A lot of businesses literally are working on a shoestring right now. There’s been a real slow down on capital investment and reduced cost of money may change some people’s minds,” he said.
By Yoland Deleveaux, The Tribune
