BASSETERRE, St. Kitts – THE Eastern Caribbean Currency Union (ECCU) can expect a further 2.3% decline in economic activity this year, causing member governments to outline provisions they say would preserve the stability of the region’s financial sector.

An assessment and outlook of the ECCU’s monetary and credit conditions and monetary policy assessment headlined Friday’s (Mar. 5) 66th Meeting of the Eastern Caribbean Central Bank (ECCB) Monetary Council in Basseterre, St. Kitts.

Reductions in Foreign Direct Investment and stay-over arrivals have been blamed for a 7.4% decline in economic activity across the region last year. According to a communiqué issued by the central bank, the ECCU economies are expected to experience a “slower recovery” and will be dependent on the recovery in larger economies.

“With the significant reliance on tourism receipts, remittances and foreign direct inflows, the pace of recovery will depend heavily on a turnaround in employment and consumption, particularly in the USA, where it is expected to lag behind the rest of the economy,” the document states.

It is against this backdrop that Council agreed its “key policy imperative” is to ensure that the stability of the region’s financial sector is not further exposed to threat. Maintaining the credibility of the Eastern Caribbean Dollar and rebuilding the image of the currency union were noted as critical to any economic recovery.

The group of finance ministers consequently directed that the ECCB administered interest rates be maintained at their current levels: the Central Bank’s discount rate at 6.5% and the minimum rate of interest on savings deposits at 3.0%. Additionally, recommendations for the central bank to offer greater liquidity support were advocated.

“In recognition of the current risks to the stability of the ECCU financial system...Council agreed to recommend that member governments enhance the ability of the Bank to provide liquidity support to the commercial banks experiencing a tightening of liquidity [and] conceptualize and implement fiscal and debt sustainability targets to support financial sector stability,” host Council Member Prime Minister Hon. Dr. Denzil Douglas noted in a press briefing following Friday’s meeting.

The Council gave an update on the enhanced regulatory framework, including various pieces of legislation governing the different classes of financial institutions, and informed that the consultative relationship between the ECCB and other stakeholders has been “significantly enhanced”.

The Council’s Eight Point Stabilization and Growth Programme is expected to guide each Member State in protecting its vulnerable economy and prepare it for an economic upturn.

The composition of the Council has changed since its last sitting, with Chief Minister of Anguilla Hon. Hubert Hughes joining the council for the first time and St. Kitts-Nevis Prime Minister Hon. Dr. Denzil Douglas returning after two years.

Hughes and Douglas have replaced Victor Banks and Hon. Dr. Timothy Harris, respectively.