The Bank of Cabo Verde has approved an exceptional package of measures for stimulation and mitigation of the impact of the new coronavirus on the country’s economy, under the terms of which the banking sector will have to provide over €400 million, the central bank’s governor announced on Thursday.
One of the measures announced by João Serra was the reduction of the benchmark interest rate by 125 basis points, from 1.5% to 0.25%.
This measure is intended “to set off a quicker and deeper response by the banks, without compromising or causing insecurity in key segments of financing of the credit institutions.”
Another stimulus is the drop in the rate of the permanent loan liquidity facility by 250 basis points, from 3% to 0.5%, with a view, according to Serra, to keeping “trust” in the markets, by giving the banks a sign from the central bank of its total availability to provide funds in situations of a lack of bank liquidity.
The governor, cited by the Inforpress news agency, also announced the creation of a new long term liquidity instrument, called the Long Term Financing Monetary Operation (OMF), to finance the banks over periods of up to three years and to set an attractive interest rate, of 0.75%, for the extended credit line.
Serra also outlined a credit line for banks, via the OMF, with special conditions, at an interest rate of 0.75%, with a value of up to 45 billion escudos, based on the debt portfolio of each bank, with a maturity that is the same or longer than the credit granted.
“This credit line is backed by public debt stock, Treasury Bonds and Treasury Bills, and by December of 2020 around 5 billion escudos per month are due to be added,” he said.
He also announced a drop in the permanent liquidity absorption rate by five basis points, from 0.1% to 0.05%, with a view to focusing bank resources on credit to the economy.
The drop in the rate of Minimum Cash Availability by 300 basis points, from 13% to 10%, is another measure announced to “strongly” encourage banks to capitalise liquidity freed up for credit to the economy, increasing it in the same proportion, until the end of 2020.