Reducing the prime rate will stimulate economic growth and investment, Simplified Lending Chief Executive Officer Robert Pantry has suggested, adding that it could increase demand for real estate and new construction.
Pantry said via a press release that a reduction in the prime rate is a “surefire” way to energize The Bahamas’ economy, though he warned that a balance has to be struck to ensure the protection of external reserves.
“I would like to see the government work with the Central Bank to evaluate the possibility of lowering the prime rate, as individual mortgages and business loan waiver programs begin to expire,” Pantry said.
According to the Central Bank on its website, the prime rate is the lowest rate of interest charged by commercial banks on loans to their best customers. It is used as a base from which interest rates on loans to the private sector are determined.
“Reducing the prime rate will allow those who have adjustable rate mortgages or loans to enjoy lower monthly payments.
“That’s a plus for businesses, individuals and families, especially in the middle class. It also frees up more money, allowing it to flow into the general economy, igniting long-term economic growth.”
Pantry said a reduction in the prime rate could mean a slight reduction in profits for banks in the short term, but said they could “experience stronger profits over the long term”.
Pantry noted that the stimulating effect on the real estate and new construction market will mean more fees and taxes for government and could bolster businesses.
“For many businesses that are teetering on the edge, trying to hang on until the new reality is established, a reduction in financing costs could be the difference between surviving and closing,” he said
“We have to look at three major indicators – investment by the private sector, movement and pricing in real estate and liquidity in the banking sector and reserves. What links those three ingredients together is lending and that is why tweaking the cost of money through a reduction in the prime rate can be helpful.”
Pantry added that lending needs to become much more accessible to entrepreneurs to spur economic growth.
“I am encouraged by the increased level of lending activity we as a company are experiencing since the government began phased reopening,” Pantry said.
“It is time we stopped making lending out to be evil and began to appreciate that the ability to borrow at reasonable rates, terms and conditions is what fuels growth in any economy.”