It's called "tight money" and it's the kind of monetary policy that government has not used since the mid 80's when an Esquivel administration was in the clutches of the IMF and the throes of crushing austerity. Well, tonight it's back.
7NEWS has confirmed that the commercial banks have been instructed by the Central Bank to reduce liquidity in the banking system. Today that meant senior bank personnel had to call around and inform their bigger clients that they were cutting back their overdrafts, in some cases halving it.
But even if you don't have a couple hundred thousand dollar sin overdraft, "tight money" can still affect you. The effect is that money becomes scarce, and that shortage makes it more expensive to borrow. But while lending rates will go up, the rates for savings will also go up, as banks try to gather money. And while savers should get an added incentive, tight money can also be expected to have an effect on the business sector, which lives off overdraft and now their Christmas stocking up may have to be cut back.
Again, this is not an official pronouncement but the banks have been making calls. And we have been making calls to the central bank too but the Governor Sydney Campbell and his Deputy Marion Palacio were unavailable. We were also unable to reach Financial Secretary Dr. Carla Barnett. But it should be noted that in unofficial minutes of meetings with the IMF in early October, Dr. Barnett was quoted as saying that government would enforce banking legislation and, "use monetary policy as a tool."