LEADER of Opposition Hon Matthew Wale says he is pleased that finally Central Bank of Solomon Islands is seeking the power to prescribe interest rates, both deposit and lending rates.
Speaking in Parliament this week on the Central Bank of Solomon Islands (Amendment) Bill 2023, Hon Wale said we have long complained about the sustained high lending interest rates in our financial sector that have confounded logic.
He said market forces logic would dictate that when supply of idle money exceeds demand for it that the price of borrowing would come down.
However, the Opposition Leader said it appears that this logic does not work in Solomon Islands.
“Banks are holding a lot of liquidity but are maintaining high lending rates regardless. The lending rates we have seen here are arguably the highest in the region,” he said.
Hon Wale said the Bills & Legislation Committee (BLC) has recommended that the Bill be amended to also empower the CBSI to prescribe non-interest bank fees.
“Of course common sense must guide what are appropriate levels of both fees and interest rates,” he said.
The Opposition Leader adds the current government-borrowing limit from CBSI set at 5% is around 180m.
He said an increase to 15% triples that to 540m based on the last set of audited government accounts used.
Hon Wale said exhausting the 15% borrowing would take debt to GDP ratio to around 24%.
“There are fiscal policy implications. The creation of an additional 5% borrowing capacity in a state of emergency is good and sensible policy. Given government’s increased appetite for more borrowing and the consistent and sustained high levels of government expenditure against the backdrop of falling revenues, I am concerned overall that government conducts its borrowing activities prudently,” he said.
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