Seychelles: Central Bank of Seychelles Cuts Interest Rates, Reserves Foreign Capital for Basic Commodities Amid Covid-19

The Central Bank of Seychelles (CBS) has announced that its foreign exchange reserve will only be used to procure three items - fuel, basic food commodities and medicines - as major shocks are expected in the economic sector amidst the COVID-19 pandemic.

The Bank also cut the Monetary Policy Rate (MPR) to four per cent from five per cent in response to the macroeconomic risks presented by the Covid-19 pandemic. The reduction is aimed at alleviating future stress on borrowers.

A credit facility of approximately $36 million will be set up to assist commercial banks with emergency relief measures to assist businesses and individuals struggling with the financial impact of the pandemic. These measures were announced at a press conference on Monday at the institution and are in line with amendments to the Central Bank Act 2004 and the Financial Institutions Act 2004 to address the adverse effects of the COVID 19 pandemic on the economy and financial system.

The governor of the CBS - Caroline Abel - explained that 2019 was a very good year in terms of foreign exchange earnings due to very good performance by the tourism sector in Seychelles - 115 islands in the western Indian Ocean. But she added that in the coming months' such resources will become more limited.

Abel also warned that the public in general, businesses and the government must spend wisely as there will be shocks in commerce and foreign exchange as what the country is going through is not business as usual. "What we are seeing now is people buying everything. Stocks are being depleted quickly making a situation that commodities which were meant to last for four to six months will only last for one month," explained Abel.

The governor advised that consumers need to reassess what they need and buy, "as pressures will reflect in commercial banks, in prices and foreign exchange. So our most important objective is stability in price. We are following this situation closely daily to see how the exchange rate is evolving with demand." Abel said that what the country is going through is not normal, consumption must be reduced to keep it at a sustainable level.

Businesses with foreign exchange earnings are also being urged to keep these in the banking system of the island nation as the CBS said it does not want to impose control on foreign exchange as it was the case in 2008.

The Central Bank of Seychelles also said that commercial banks, the Development Bank of Seychelles (DBS) and the Seychelles Credit Union have agreed to consider a moratorium of six months on the repayment of principal and interest on loans to assist businesses in impacted sectors. The six-month moratorium may also apply to individuals that have been adversely impacted.

Banking institutions will also consider their customers' need for restructuring of their loan facilities, which will be assessed on a case-by-case basis. "The way the industry works here is when the tourism industry is being affected, this has a direct impact on other industries. The relief policy measures will provide businesses breathing space during critical times so that when things improve, the businesses would have survived and help to restart the economy," explained Naadir Hassan, head of finance surveillance at the Central Bank.

Hassan added: "We support the private sector to remain afloat so that they can then help to rebuild the economy. The focus is on supporting their cash flow so that they can continue to meet critical expenses." These include salaries, loans, utilities and rent.

More From: Seychelles News Agency

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