The Effect of Interest Rates on the Economic Development of the ECCU Region
A comparative analysis of interest rate variances across the currency union, and what dispersion signals about market structure.
Introduction
A study of the interest rates marketplace lending institutions charges on borrowings across the Eastern Caribbean Currency Union (ECCU) region finds vast differences across our financial territorial landscape. Through an in-depth comparative analysis of these interest rates differences throughout the (ECCU), we examine the factors that influences interest rates, such as a country’s level of investments, public sector debt, political stability, inflation, the standard of living, and the role if any of the Eastern Caribbean Central Bank (ECCB), in influencing the macroeconomic components of interest rates as it relates to the real interest rate, inflation, liquidity and credit risk. Following the aforementioned, we then formulate a conclusion on whether there is a need for a more regulated interest rates “union” across our free movement ECCU economic landscape.
Before analyzing the contexts of the stated components, we define Interest rates as macroeconomic variables that represents a significant component of monetary policy, and balancing those components are a critical outlay of economic stimulation. Similarly, for effective economic stimulation, regulators must actively monitor interest rates activity to best promote a nation’s development. Further, before we explore, allow me to outline the four core functions of the ECCB as it relates to monetary policy in the ECCU:
To regulate the availability of money and credit,
To promote and maintain monetary stability,
To promote credit and exchange conditions and a sound financial structure conducive to the balanced growth and development of the economies of the territories of the participating Governments, and
To actively promote through means consistent with its other objectives, the economic development of the territories of the participating Governments.
Exhibit 1 below depicts a pareto chart highlighting the average interest rates charged by financial institutions on each of the eight member ECCU Islands. Here we examine each Island level of investments, and political stability.
Exhibit 1
Exhibit 1 depicts a pareto chart of the average interest rates across the ECCU territories.
As we explore the fluctuations in interest rates across the ECCU landscape, it is important to examine each Island’s interest influencing factors, for example the Island’s level of investment, public sector debt, inflation rate, and standard of living.
Examination of the ECCB involvement into greater control on the interest rates.