ECCB 2015/2016 Annual Report

EASTERN CARIBBEAN CENTRAL BANK

The appointment of the new Governor, has ushered in a new era for the Bank. It is expected that the Bank will continue to deliver on its core mandate which is to preserve the fixed exchange rate regime and ensure the stability of the financial system. To this end, financial sector stability; fiscal and debt sustainability; and improving growth, competitiveness and employment will remain as strategic priorities for the formulation of the 2016/2017 work programme. In addition, emphasis will be placed on improving organisational and operational effectiveness and transparency, with a view to restoring the profitability of the Bank and enhancing relationships with the citizens of the region. M onetary P olicy Monetary and exchange conditions in the ECCU member states remained stable in 2015, primarily influenced by the continued resilience of the exchange rate peg. The integrity of the fixed exchange rate arrangement was not compromised, as the currency continued to be adequately supported by foreign reserves and positive domestic growth. The foreign reserves to demand liabilities or the backing ratio, averaged 96.45 per cent during 2015, comfortably above the statutory and operational limits of 60.0 per cent and 80.0 per cent respectively. R eserve M anagement The ECCB foreign reserve portfolio performed positively over the period under review. Since the portfolio is benchmarked against US Treasuries, its performance was largely dictated by yield and price movements in the US treasury market. Support for MONETARY STABILITY

higher yields and lower prices occurred late in 2015 when the Federal Reserve increased the policy rate to a range of 0.25 to 0.50 per cent from a range of 0 to 0.25 per cent. However, yields tumbled and prices rose following historic volatility in Chinese financial markets and a continued decline in crude oil prices during the early months of 2016. Those events caused market expectations for further interest rate increases by the Federal Reserve to subside. In the management of the foreign reserve portfolio, the ECCB continued to satisfy its reserve management objectives of preserving capital and meeting liquidity needs. The duration of the ECCB’s Customised Benchmark was rebalanced to two years in keeping with the risk tolerance prescribed by the ECCB Board of Directors. The increase in the value of the ECCB’s nominal base of foreign reserve assets made it possible for the Bank to transfer funds from the lower yielding liquidity tranche to the higher yielding core tranche of the foreign reserve portfolio. C urrency M anagement The main focus of the Currency Management Department is to ensure that the public in the ECCB member territories has adequate quantity and quality of notes and coins in denominations which best suit their needs. As at 31 March 2016, currency in circulation stood at $967.46 million compared with $880.17m a year ago. The figure represents banknotes in the amount of $871.92m (90.12 per cent), while coins in circulation amounted to $95.54m (9.88 per cent). Currency in circulation reached the billion dollar mark in the week of 25 December 2015. The increase in currency in

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ECCB A nnual R eport 2015/2016