CBS announces relaxed monetary policy for Q4, 2020 | 02 October 2020
The board of the Central Bank of Seychelles has decided to maintain a relaxed monetary policy for quarter four 2020, and to therefore maintain the monetary policy rate at 3.0 percent.
Governor Caroline Abel once again urged consumers, the government and all actors to be financially prudent, noting the global contraction in economic activity and subsequently, uncertainty as to tourism arrivals and earnings, once the paradise islands’ bread and butter.
In line with its main objective to maintain price stability, the CBS is closely monitoring any developments and observed price increases in Q3, 2020 on account of higher food and non-food inflation.
“If our foreign exchange rate continues to depreciate, the consequence is that we will see a much higher general price in the country, and the consequence affects everyone,” Governor Abel asserted, referring to the continual depreciation of the foreign exchange rate on account of higher demand than supply.
Despite consistently high demand for foreign exchange, both inflows and outflows have declined noticeably as compared to 2019.
Governor Abel also highlighted a drastic reduction in economic growth for Q2 which fell by 19.1 percent, as compared to Q1.
“If compared to the same Quarter last year, the reduction is 17.2 percent, so we can understand how the tourism sector and its integration with other economic activities, the consequence it has brought for the economy,” she stated.
Still on the domestic front, despite the slow revival of the tourism industry with the reopening of the Seychelles International Airport, there has been a contraction in visitor arrivals and earnings.
The economy is also stagnant with regards to growth in credit as commercial banks are not necessarily issuing loans for the present moment, with the ever-growing uncertainty as to how the world’s economies will recover. Commercial banks are issuing loans to qualifying business enterprises under two lines of credit administered by CBS, targeted at micro, small and medium enterprises (MSMEs) and large enterprises.
Ms Abel explained that it would have been prudent to tighten the monetary policy, but considering the fragility of the economy, coupled with significant reduction in economic growth, it is just as imperative to offer relief to economic actors.
“We have a responsibility to maintain price stability, but we also have a responsibility to sustain the economy. And in this reality we are faced with, Board felt it should keep the reality of the third Q2, as since the start of the year, we have reduced the monetary policy by 2 percent, plus we have made available two lines of credit to sustain businesses, so it feels at present, it would be better to maintain the monetary policy,” Ms Abel further added.