PNP plan to get banks to lower interest rates could have opposite effect - economist

 

Economist Keenan Falconer says a proposal by the parliamentary opposition to open up government deposits to all banks using a competitive system aimed at lowering interest rates could have the opposite effect.

 

In his contribution to the 2025/26 Budget Debate in the House of Representatives on Thursday, Opposition Spokesman on Finance Julian Robinson claimed that a lack of real effective competition in the banking sector is part of the reason interest rates are not moving down.

 

Mr. Robinson said, to increase banking competition, a People's National Party-led government will end the long-standing practice of the majority of funds held by government ministries, departments, and agencies being deposited only in the two major commercial banks, National Commercial Bank and Scotiabank— a move that will ensure all deposit-taking institutions can compete for government deposits.

 

Speaking Friday on the Morning Agenda on Power 106, Mr. Falconer said, while the move is well-intentioned, financial institutions may try to outbid each other, which could drive up interest rates for consumers. 

 

"Anything that is geared towards increasing the competition within the banking sector is always a good thing. However, I also think that if you were to open it up to competition...the money is going to flow to the institutions that can offer the higher rate, and then in an attempt to outbid each other, it might have an upward pressure, upward movement on interest rates, which is the opposite of what would have be proposed," he reasoned. 

 

Overall, he said Mr. Robinson's contribution to the Budget Debate was fairly balanced on the social and business sectors.