CBSI Monetary Policy Response to COVID-19
How the Central Bank of Solomon Islands Support the Economy and Financial System through its monetary policies in response to COVID-19.
The Central Bank puts in place the following set of monetary policy measures to support the financial system and the economy of Solomon Islands.
Eases Cash Reserve Requirement
In June 2020, the Central Bank of Solomon Islands (CBSI) has made changes to the Cash Reserves Requirement (CRR) as part of its responses to the Coronavirus-19 (Covid-19) pandemic. The CRR has been eased from 7.5% to 5% to mitigate the impacts of COVID-19. The reduction in the CRR is amongst the various measures undertaken by the Bank in response to the negative effects of Covid-19
It requires commercial banks to hold minimum reserves on their deposits at CBSI. The reduction in the ratio would support the banking sector and ensures additional liquidity support should it be required during the current period of uncertainty. Notwithstanding this policy development, other supervisory measures remain in place to ensure people’s deposits are secure in the financial system.
Partners with Stakeholders to initiate Solomon Islands Digital Marketplace ( COVID-19 Response & Recovery Project)
The Central Bank of Solomon Islands (CBSI) along with the United Nations Development Programme (UNDP) and the United Nations Capital Development Fund – Pacific Financial Inclusion Programme (UNCDF-PFIP) have partnered with Bulk shop to initiate The Solomon Islands Digital Marketplace (COVID-19 Response & Recovery) Project.
CBSI Supports Secondary Market for Government Bonds
In line with its accommodative monetary policy stance, and apart from the normal open market operations, CBSI announced that it will commence purchasing government bonds in the secondary market to mitigate the impacts of the coronavirus pandemic on the Solomon Islands economy. On 21st December 2020, CBSI purchased its first SIG Covid19 Bond valued at $60 million from the Solomon Islands National Provident Fund. CBSI has also informed other bond holders about the existence of this secondary market option.
The CBSI Act 2012 section 36(1) prohibits CBSI from directly lending to the government with the exception of intraday credits and temporary advances. However, section 36(4) provides for the Bank to purchase government securities in the secondary market. Such legal provisions are common or standard for other modern and independent central banks around the world.
CBSI Roll out Export Finance Facility
On November 12, 2021, the Central Bank of Solomon Islands launched a new finance facility to support mainly local exporters, this is to ensure ample liquidity remains in the financial system to support economic recovery. The launch was witnessed by stakeholders, commercial banks, and local exporters themselves, including the Development Bank of Solomon Islands (DBSI).
In 2020, the CBSI Board had approved the policy concept to introduce the Export Finance Facility (EFF) that will be administered by CBSI.
The Facility is set up with the intention to increase exporting activities by locally-owned Micro Small Medium Enterprises (MSME) exporters. It aims to enable local-owned exporting MSMEs to access credit financing through their respective financial institutions at concessional rates of interest, much lower than the prevailing market interest rates especially during the pandemic. Where uncertainty remains, CBSI will closely monitor the situation and will take appropriate actions if needed.
Financial Regulatory Policy Response COVID-19
CBSI has waived the application of paragraphs 33, 34 and 40 of the prudential guideline 2 (PG2) and application of paragraph 7 of prudential guideline 8(PG8). The former relates to classification of loans considered under COVID-19 relief package and loan loss provisioning.
The waiver to paragraph 7 of PG8 allows licensed financial institutions to change or introduce new interests, fees & charges without the 30 calendar days required before implementing such changes.
This waiver is effective for six months from the date, Thursday 3rd February 2022.
This action is necessary in light of the current COVID-19 community transmission which is adversely disrupting business operations of households and/or individuals resulting in weak cash flows to repay loan commitments on time.
Reduction in the Stock of CBSI Bokolo Bills
In 2020/2021, the Central Bank of Solomon Islands reduced the stock of CBSI Bokolo Bills as one of the monetary policy response to the COVID-19 pandemic. Based on recent assessments of economic conditions and outlook, under the current stance, CBSI will continue to support the economy by maintaining the Bokolo Bills stock at $430 million and Cash Reserve Requirement at 5%, and continue to assist exporters with the Export Finance Facility.
There is also room for bond purchasing in the secondary market. Extreme uncertainties and rising risks remain, and CBSI stands ready to act accordingly should the circumstance warrant.