Barbadian residents and other investors looking for a quick return on their investment were the main reason why the Central Bank’s $10 million savings bonds issue was so quickly snapped up.
This assessment from president of the Barbados Economic Society, Jeremy Stephen, who insisted the sell-out, within three days of the financial instruments coming on to the market, was not necessarily a reflection of renewed confidence in the Government.
Speaking to Barbados TODAY in a telephone interview, Stephen said while he always expected the Central Bank’s re-launched programme to garner much attention, he believed it was more a case of persons “chasing liquid benefits”.
Stephen, an economist, saw this resulting directly from the Central Bank’s recent removal of the minimum savings rate on deposits with commercial banks and other deposit-taking institutions, and its offer of an interest rate of 5.5 per cent over a five-year period on the savings bonds.
“I’m not surprised,” he said. “I always believed that you would find larger institutions, larger businesses and wealthier individuals making a mad grab for Government debt. I don’t necessarily believe, however, that it is an indicator that people think Government paper is safer.”
Stephen added: “I don’t believe that it is an indicator of increased confidence in our Government as yet . . . just one of people chasing yields in the short term and people being educated as to the pure benefits at this time and not necessarily the risks.”
The Central Bank is set to release another $10 million in savings bonds next Monday. Stephen expects them to go just as fast as the first batch.
While he said it would be interesting to find out who the main buyers were, he suggested it may have been mostly private businesses.
“It’s a matter of the lesser of two evils. People aren’t seeing Government in a different light to how they saw them before, but they are thinking that they can’t get a certain amount of money on the bank from their fixed deposits. Therefore, they have to find something that replicates a fixed deposit that they can get even more interest from holding these instruments.
“What would be of interest though, is how much of that allotment was taken up by smaller private interests and corporate interests. I would imagine, not really looking at this point to make any wholesale judgements, that a significant portion would have been taken up by private interests . . . and probably not wealthier individuals and not necessarily the average person,” Stephen noted.
“When all is said and done, it is a viable tool, but what, at least for myself personally, should have been pushed, was more so the weaknesses of investing in savings bonds, particularly in this environment, ” he added.