EC dollar remains stable

Despite a sharp upturn in the prices of fuel and petroleum products, and the resulting hikes in the cost of transport and electricity, the Eastern Caribbean Central Bank (ECCB) has managed to achieve its main objectives of monetary and financial sector stability, Governor of the ECCB, Sir Dwight Venner, said.

Sir Dwight disclosed, during the ECCB 2005/06 annual report on Wednesday June 28 that the Eastern Caribbean Economic Union (ECCU) recorded growth of approximately 5 per cent, compared with the 2004 growth rate of 3.9 per cent.{{more}}

The growth in the currency union, was, however, mainly attributed to a sharp expansion in public and private sector construction activity, partly due to the preparations for the Cricket World Cup in 2007.

However, economic shocks such as a weakening in the tourism sector and the rising interest rate environment existing in the United States resulted in an increase in the inflation rate in ECCU countries to 4 per cent in 2005, up from 2.6 per cent in 2004.

“The exchange rate peg of the EC dollar was maintained, and the foreign reserve backing of the currency stood at 96 per cent at 31 March 2006, well above the statutory requirement of 60 per cent,” Sir Dwight said.

According the Central Bank Governor, the ECCB enabled this through a number of initiatives including the drafting of new prudential guidelines and regulations, aimed at strengthening its regularity capacity and financial sector risk management in the currency union.

Refinement of the risk assessment model used as the basis for an early warning system, he said, and the reducing of the vulnerability of banks to credit risk by mandating the reduction in tolerable limit for non-performing loans from 10 percent to the international benchmark of 5 percent were other measures taken by the ECCB in achieving its financial sector stability.

Sir Dwight confirmed that operating income of $64 million exceeded the ECCB’s budgeted amount by more than $11 million, while the total expenditure of $51 million was less than budgeted by just over $ 1 million.

“The conservative expectation for income, coupled with strict expenditure management controls, contributed to a higher than anticipated operating profit of just under $13 million,” Sir Dwight acknowledged.

He added: “All in all, however, I am pleased to report that 2005/2006 was a successful and profitable year for the Bank.”

According to Sir Dwight, continued persistence in our joint efforts to strengthen the Eastern Caribbean Currency Union is necessary if the Bank is to continue to fulfill its mission to maintain the stability of the EC dollar and to ensure the safety and soundness of the banking system.