Central Bank reassures foreign reserve levels are healthy

Despite public commentary to the contrary, the Central Bank of The Bahamas (CBOB) yesterday again reassured that its foreign reserves are in good standing.

In its quarterly letter on regulatory and supervisory developments, Inspector of Banks and Trust Companies Charles Littrell revealed that, as of June 30, the reserves stood above $2 billion.

“The Central Bank has observed occasional public commentary that the BSD/USD peg is under pressure due to falling foreign exchange reserves. The most relevant facts are external reserves, as of June 30, 2019, were US$1.56 billion; reserves prior to the COVID-19 outbreak (as of February 29, 2020) were US$1.97 billion; and reserves currently (as of June 30, 2020) were US$2.08 billion,” he said.

Littrell stressed that while the COVID-19 outbreak is a substantial economic challenge for The Bahamas, it has yet to place appreciable pressure on the external reserves position.

“The reduction in economic activity since March has materially reduced foreign exchange outflows. There is also the consideration that the Central Bank retains several policy tools, which it will deploy in need, to preserve the external reserves position,” he said.

“The Central Bank expects to allow some rundown in the external reserves from the current historic highs, to finance necessary imports and to support high-value developments in the tourism sector. These developments will stand the country and economy in good stead when tourist traffic eventually returns to more normal levels. The Central Bank remains confident that it will retain sufficient reserves to maintain the BSD/USD peg.”

In response to the COVID-19 economic crisis, the CBOB has taken several measures to shore up reserves, including the suspension of resident access to exchange for international capital market investments through Bahamas depository receipts and the Investment Currency Market; the suspension of dividend payment approvals for commercial banks; the introduction of more relaxed margins by which commercial banks are allowed to trade foreign exchange; and the move toward the liquidation of certain National Insurance Board external investments.

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