Speaking at the Economic Stimulus Package Forum last Friday, Leasi revealed initiatives Central Bank has taken to stimulate the economy.
He said since August last year they have tried to drive interest rates down.
“The official interest rates have come down and the commercial banks’ rates have also come down albeit slightly,” he said.
“We’ve also allowed the exchange rate of the [Samoan currency, the] tala to appreciate against the New Zealand and Australian dollars. The main reason is to try and reduce the cost of imports from those countries.”
Leasi said that effective from Feb. 2, the Central Bank’s lending rate to the commercial banks was reduced from 7.8 to 5 percent.
“We also extended the period that we normally lend money to the commercial banks from seven days to 30 days,” he said.
But none of the four commercial banks in the country have loans at Central Bank.
He explained that the banks have “substantial liquidity” for high deposit rates, indicating they do not need to loan from Central Bank.
So Central Bank on Thursday came up with an incentive to encourage banks to borrow from them
All commercial banks have to deposit sums at Central Bank called SRDs.
What the Central Bank’s board has done is to allow 50 percent of the SRDs to be used as collateral for banks who want to borrow from them.
It means making available $40 million for borrowings — and at the reduced interest rate of 5 percent, Leasi said.
“We have also agreed to allow an extension of the term that the banks can borrow from us from 30 days to 183 days or six months,” he said.
“So that’s the new initiative we have come up with and we do hope that the commercial banks are here.”
Central Bank is forecasting that private remittances will fall by around 8 percent toward the end of June.
“We are also forecasting that tourist arrivals will also fall but by a smaller margin of about 2 percent,” Leasi said.
“But because we do have a high inflation rate we are estimating that revenue will rise by around 11 percent to 137 million from 124 million from last year,” he said.
“We’re also saying that exports will increase slightly. And the main reason for that is because we do have some new products which are entering the market namely bottled water, and we’ve also seen the re-entry of desiccated coconuts and nonu juice to the export market. Overall we are saying the economy will decline by around 1.7 percent by end June.”
Leasi said this would mainly be due to the difficulties in manufacturing as seen in Yazaki EDS Samoa, construction activities, agriculture and fishing.
“We feel that other sectors like commerce, transport and communication, public administration, finance and business services, as well as the hotels and restaurants will incur steady performances.”
Inflation will probably peak at 15 percent in June hopefully declining on a month-to-month basis from then on, Leasi added.
“And the good news is our (foreign) reserves are estimated to maintain at our target level of four months of import cover,” he said.
“We’ve…allowed the exchange rate of the tala to appreciate against the New Zealand and Australian dollars. The main reason is to try and reduce the cost of imports from those countries.”
