BUSINESS MONDAY: ECONOMIC VIEWPOINT
Mon, 12/05/2016 - 12:00am
Several paths for income earners to take during December
IN a matter of days the campaigns will start, assuming they have not already done so, for the pockets of income earners in Barbados.
The campaigns which will be varied across sectors, are going to target income earners to shop for Christmas as is customary at this time of the year. The give-a-ways, the prizes and everything else that goes with them, are going to test the spirits of people who are known not to ignore bargains when they become available.
The decisions by the public whatever choices they exercise, are located in three reasons why people hold money: speculative, precautionary and transaction purposes. These three factors therefore determine what will happen this month if people do find themselves with additional income.
People maintain cash balances to meet planned payments for items and other requirements; they also hold money for precautionary purposes so as to be able to meet any eventuality; and the speculative consideration suggests a need to invest in securities and take advantage of unexpected opportunities.
So there will be the incentives to shop, just as well as people will be encouraged to play safe by remaining tight with money held close to one’s chest.
Looming very large will be the enticement to invest whether in putting funds on deposits at the commercial banks or credit unions; in government bonds and other big instruments; mutual funds; and in shares offered by companies listed on the Barbados Stock Exchange (BSE).
That’s the month of December for you and what it means for income earners in Barbados.
Currently, there is still a large amount of liquidity in the financial system as measured by the excess liquidity ratio. The build up in liquidity stems from a slowdown in borrowing simply because some people with the exception of those going after mortgages, are still cautious given that the economy is still not vibrant enough growing by about 1.3 per cent.
However, adding funds to the build up in the banking system might not be rewarding to people looking to see their money grow. The commercial banks took the opportunity to lower interest rates on savings just over a year ago from the 2.5 per cent rate, to under one per cent.
As at September 30 this year, the average loan rate at commercial banks were 6.8 per cent the same as in 2012, whereas the average deposit rate (also at September 30, this year) was a miserly 0.3 per cent compared to the 2.5 per cent in 2012.
Mortgage rates are proving to be very competitive ranging from four per cent to five percent and this can continue to be an attraction for investing, once the challenging economic environment improves.
Usually at this time Government comes out with some big instruments worth more than $100 million and carrying interest rates of six per cent and seven per cent but with longer maturities.
These will prove attractive to the institutional investors and others who can afford to have their funds tied up for a long time while benefiting from interest income at least twice a year.
The Central Bank has just mounted a campaign using a catchy jingle to attract interest to the savings bonds which continue to be a major vehicle for local investors, especially the smaller ones, to park their funds. More than $90 million of these bonds have already been taken up by the public as people take advantage of the five per cent rate of interest which the bonds carry, and which mature after five years.
As for the stock exchange and investing in shares, quite a few investors in the listed companies are offering shares for sale. Last Friday the BSE’s market report showed that that there were well over 250 000 bids (people looking to buy) across a number of shares. Similarly were requests for sales also across a range of stocks.
There were some improvements in share prices during the year given that some companies had started to register improved sales and higher profitability when compared to what had taken place in previous years as a result of the recession.
It was stated recently that stock markets around the region need to offer more attractive instruments. Those making the recommendation believe that can broaden the range of portfolios.
The treasury bill rate was 3.1 per cent at September 2016, compared to 2.0 per cent a year earlier. The USA’s treasury bill rate was 0.3 per cent and difference with the Barbados rate is that it may be a way of keeping investors from taking up the USA instruments.
This month the Mutual Funds industry will be inviting people to invest. Some very good pieces of information quite recently came from the Fortress Mutual Fund Managers. For the third quarter in 2016 the Fortress Fund Managers reported a good showing by their funds noting that they had registered strong growth and very good investment returns for investors. Jamaica remains the market which is offering good returns ion investments.
Trinidad and Tobago is having some economic troubles and as said earlier Barbados has its challenges.
One waits to see how these situations evolve.