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Bahamian Politics Last Updated: Feb 13, 2017 - 1:45:37 AM

Peter Turnquest on the Drop in Prime Rate by the Central Bank
By The Free National Movement
Dec 22, 2016 - 8:42:14 PM

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Nassau, Bahamas - K. Peter Turnquest, Deputy Leader of the Free National Movement (FNM) and MP for East Grand Bahama, issued the following statement on the drop in Prime Rate by the Central Bank:

“While the Prime Rate reduction by 50 basis points is a late development after the county's debt rating has already been downgraded to junk status, and while it does not compensate for the failed mortgage relief program or the lack of a credible economic growth plan, this is a positive step taken today by the Central Bank. To the extent the lending requirements can be met, the rate reduction should help to stimulate construction and small business investments due to lower interest rates on loans.

“It is also an effective mortgage relief tool as the interest payment portion of mortgage will be reduced making the overall monthly payment lower. It is a direct reaction to the S&P downgrade and an effort by the government to stimulate economic growth while helping its debt servicing case and infrastructure investment cause by reducing its own domestic borrowing cost. In short it is self serving but should help borrowers as well as the government to the extent that local investors are willing to take in the country's credit risk at reduced rates of return. If investors hold government debt or savings however, they are not likely to be too happy as this will also reduce their interest income. Soon, if not already they will be paying the bank to keep their money.

“The FNM supports this action by the Central Bank and trust that it will result in positive job creating investments in the private sector. We would point out though that this will put pressure on our foreign reserves, which, though relatively high at the moment, is always at risk of going into dangerous territory with low FDI and tourism receipts. The drop in the prime rate will in time adversely affect our foreign reserves. That is particularly true in an environment where the government has demonstrated an inability to fix our trade deficit because of a lack of indigenous entrepreneurial activities. That is why an FNM government will prioritize the promotion of entrepreneurship.”

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