Interest rates fell in the latest issues of Treasury bill that were on offer on Wednesday continuing a slow decent since the start of 2015 but a much steeper decline form March last year. The two offerings for $400m each, attracted bids for over $940 million each with a total of 1.93 billion.
The 91 days instrument cleared at an average of 6.352 percent down from July’s average of 6.44 percent with bids between 5.93 percent to 6.4304 percent were fully accepted while the 182 days yielded an average 6.49 percent a decline from July’s average of 6.60 percent with bids between 6.2 to 6.55 percent being fully allotted.
The declines come against the back ground of Bank of Jamaica (BOJ) 0.25 percent cut in its 30 days CD rates effective on Tuesday. There is no indication in the Treasury bill average rate that the BOJ move had any noticeable impact, although the rate of decline this time around is steeper than the previous three.
Treasury bill rates continue slide
Bank of Jamaica cuts interest rate
The interest rate offered by Bank of Jamaica on its benchmark 30-day Certificate of Deposit will be reduced to 5.25 per cent from 5.50 per cent effective 18 August, Bank of Jamaica announced on Monday.
According to the central bank, “macroeconomic vulnerabilities continue to be reduced in the context of the strong implementation of reforms under the Economic Reform Programme. Annual inflation is expected to be within the 5.5 per cent to 7.5 per cent target range by the end of the fiscal year and is projected to decline in the medium term. This assessment is supported by continuation of low international oil prices, a post-drought recovery in agriculture output and continued reduction in inflation expectations. In addition, the current account of the balance of payments is improving, net international reserves are rising, the Government’s debt ratios have improved markedly, and the Government has demonstrated commitment to a strong fiscal stance”. The rates applicable to the Bank’s lending facilities that are linked to this policy rate will correspondingly fall by 25 basis points.
Inflation jump in July
Cost of food jumped sharply in July
Higher rates for electricity, water and sewage were items helping in the inflationary push but the division of ‘Transport’, recorded a decrease of 2.7 per cent, which tempered the upward movement of the overall index. This decline was due largely to 16.7 per cent decrease in adult bus fares for passengers in the Greater Kingston
Metropolitan Area taking Jamaica Urban Transit Company (JUTC) buses.Inflation in a calendar year-to-date inflation rate of 1.4 per cent, while the rate since last year July is 3.8 percent. With the price of oil on the world market at US$42 per barrel and the announcement of reduction in electricity cost locally, will have a moderating effect on inflation going forward for a while.
Employment rate up with less employed
Jamaica’s unemployment rate slipped in March this year to 13.2 percent versus 13.6 percent in March 2014, but with less persons employed in the 2015 period versus 2014.
According to the Statistical Institute of Jamaica the government body charged with collecting and collating economic data on the country, the Employed Labour Force for April 2015 was 1,129,100, a total of 3,900 less than the 1,133,000 recorded in April 2014.
The Employment Rate rose to 86.8 per cent in April 2015 for an increase of 0.4 percentage point compared with 86.4 percent in April 2014 as a result of more persons classified as not being in the labour force, an increase of 15,000 persons. The bulk of the increase in areas where there was employment, was in the clerical category, but the growth here seems to have replaced persons in the lowest area: “Elementary Occupations,” that lost 16,800 workers.
Tourism employed more persons
Investors rebuff T-bill offer
The Treasury bills offer that closed on Wednesday saw investors rebuffing the government offering by refusing to bid for the full amount of $400 million offered to mature on Friday, 11 September 2015.
This is the first that this has happened for some time. Investors placed bids for only $305,006,100 for the $400 million offered while the government took up $305,005,500 but at a slightly higher rate of 6.2552 percent than obtained at the July auction. At the July auction the average was 6.217 percent. Full allotment was made for bids with yields ranging between 6 percent and 6.5 percent.
In June 2013 investors rebuffed government’s the 90 days and 182 days offers of Treasury bills. The three months issue that matured on 20 September 2013 for $400 million attracted just $284,330,500 and the six month issue that matured on 20 December 2013 for $400 million but attracted just $201,628,400.
Remittances growing slowly
Jamaica enjoyed US$194 million in remittance inflows for the March this year, an increase of US$5.7 million or 3.1 percent relative to the same month of last year, after factoring an expansion in remittance outflows, net remittances came in at US$174.4 million, an increase of only US$2.6 million or 1.5 percent over the 2014 period.
Total remittance inflows were US$528 million for the first three months of the year, an increase of US$13 million or 2.6 percent. Net remittances for the 2015 March quarter were US$471 million, growth ofUS$8.3 million or 1.8 percent relative to the corresponding period of 2014. For the review period.
For 2014 total inflows into the system is put at US$2.16 billion by Bank Of Jamaica while outflows amounted to $227 million and declined from US$240 million in 2013 and US$267 million in 2012.
Tax Inflows up cost down for GOJ
Phillips pulling in revenues ahead of target and holding on cost.
Expenditure is down by $3.76 billion, with reduced spend on capital expenditure accounting for $2.1 billion, interest $571 million and other programmed expenditure of $1 billion. Programmed expenditure savings, may include amounts budgeted for wage increases but not yet paid and may be purely a timing issue than a real savings.
Government borrowed $13 billion less than forecast, paid out $1.7 billion more than budgeted and that should result in a reduction in interest cost going forward. Overall, the Fiscal deficit for the two month period, is $5 less that budgeted and pushed the overall deficit to $11.5 billion down from $16.5 billion planned.The wage bill is $27 billion for the two months. A settlement of 5 percent for the year would add $8 billion to the cost, but government would get taxes direct and indirect form its payment. The longer the parties take to settle the less costly it will be for the government, or the easier it will become to pay a higher amount, but there is a matter of year two to contend with as well.
Barbados between rock & hard place
Barbados once the pearl of the Caribbean is encountering some tough times these past few years. The economy has grown only 1.5 percent since 2009 with a 0.6 percent growth in 2014 up from negative growth in the previous year.
If slow growth was the only problem it would not be so bad. The country faces mounting debt with a gaping fiscal deficit and rising interest cost. The fiscal numbers showed improvement last fiscal year to March, with higher revenues and grants and lower cost before debt servicing, but still ended with a $633 million deficit or 7.2 percent of GDP.
The data that tells of a major problem, is to be found in corporate taxes. Having taken in $521million in 2009 the take has fallen by $342 million to only $179 million in the latest fiscal year, partially offset by a 31 percent rise of $102 million in personal taxes. Vat tax took in 16 percent more in the 2015 year than it did in 2009, an increase of $125 million and that is to benefit from a broadening of items to be included as of the new fiscal year.
Good news| Wages remained at roughly the same level as in 2009 at $802 million but is down from $872 million in 2013, while the government cut subsidies and transfers by $177 million in the last year. Overall revenues rose in the year to March 2015 above that of 2014 by $171 million and just $34 million ahead of the 2009 intake. The other good news is that while the deficit is high it is down from 11.2 percent of in 2014. On the negative, the bulk of the funds borrowed is from overseas and with the credit rating downgraded recently, borrowing cost which is set to rise due to large deficit will increase move than might have been contemplated earlier.
In its 2015/16 budget presentation, the projection for the 2015/16 fiscal year is revenues of $2.539 billion with the fiscal deficit is projected at $734 million or 8.3 percent of GDP with measures that will raise B$200 million in additional taxes and excise duties in the full fiscal year announced, this could result in reduced economic activity and may negatively affect inflows.
Barbados slow Q1 growth
Image courtesy of arztsamui/FreeDigitalPhotos.net
In 2014 the country enjoyed growth of a mere 0.02 percent, slightly better than the negative growth of 0.01 percent suffered in 2013. The country has been struggling since the global economic collapse in 2008 with a 4 percent contraction in the economy in 2009. Economic growth is yet to get the economy back close to that level in 2008 with moderate growth of 1.4 percent from 2010 to 2012 and just 1.5 percent to 2014.
Barbados growth is being stunted by rising government debt with large fiscal deficit despite adjustments make in reducing wage cost and subsidies to state entities.
Treasury bill rates fall
At the latest auction for the issue of Treasury bills held today, rates on the 28 days, the 91 days and 182 days bills declined from ay auction, continuing the decent starting March last year.
The latest rate on the 91 days instrument is now at 6.48 down from 6.57 percent at the May auction and the 182 days is now at 6.63 percent, a fall from 6.7 percent. The 28 days instrument ended with a rate of 6.23 percent down from 6.27 percent in May. The rates are far off from the BOJ CD rate of 5.25 percent.
A total of $1.2 billion was available for the public to bid on, split equally between the three issues. The 28 days offering attracted $475 million the 91 days attracted $602 million and the 182 days instrument attracted $828 million. With the interest rates on some of the Jamaican government’s bonds tied to Treasury bill rates, the latest development of lower rates will mean lower cost for the variable rate bonds.
With inflation looking as if it could end 2015 around 3.5 percent Bank of Jamaica may have to intervene by lowering the CD rate to speed up the fall in Treasury bill rates.