The Bank of Jamaica hikes its overnight rate once more by 0.50 percent to 5.50 percent following the latest meeting of the Monetary Policy Committee (MPC).
The decision the bank stated was “unanimously agreed to” by MPC who “also decided to continue pursuing other measures to contain Jamaican dollar liquidity expansion and maintain relative stability in the foreign exchange market.”
The Committee noted that
“while inflation at May 2022 of 10.9 percent was lower than inflation at April 2022, core inflation remained elevated and headline inflation is likely to continue to breach the Bank’s target range over the next year.”
The MPC noted that its current decision reflects a cumulative increase in the policy rate of 500 bps since October 2021, which has taken the policy rate closer to the level that the Committee considers appropriate. The bank stated that “the measures are also aimed at reducing economic demand and, consequently, the ability of businesses to pass on price increases to consumers. These decisions are also expected to continue to support a relatively more stable foreign exchange market.”
BOJ hikes interest rate higher to 5.50%
Bank of Jamaica signaling tighter Monetary Policy
Bank of Jamaica (BOJ) announces its decision to hold the policy interest rate unchanged at 0.50 percent per annum. The Bank also decided to consider commencing a tightening of monetary policy at the next meeting of the Bank’s Monetary Policy Committee (the MPC Committee) in September and to immediately implement other measures aimed at moderating inflation expectations, including the containment of Jamaican dollar liquidity expansion.
The BOJ went on to state, “While the Bank does not target any specific level of the exchange rate, Bank of Jamaica will also seek to ensure that movements in the exchange rate do not threaten the inflation target.”
Monetary policy decisions taken by Bank of Jamaica are aimed at ensuring that the annual increase in the prices of consumer goods and services (i.e. inflation) remains within the Bank’s inflation target of 4 percent to 6 percent.
These decisions were made by a unanimous vote by the MPC. The decisions were based on the MPC’s assessment that, while inflation is likely to breach the upper bound of the Bank’s target range over the next year, starting the September 2021 quarter, inflation will gradually decelerate thereafter as the transitory effects of the pandemic fade. “Conditional on the gradual tightening of monetary accommodation, inflation is projected to remain at 5 percent over the medium term, ” the BOJ stated.
BOJ overnight rate still 0.50%
Bank of Jamaica announced the decision to maintain its accommodative monetary policy stance by holding the overnight policy rate offered to deposit-taking institutions at 0.50 percent per annum.
In announcing the decision to hold the rate Governor of the Bank of Jamaica, Richard Byles, stated, “I think it is important to emphasize that Jamaica’s financial system remains sound, well-capitalized and its current holdings of Jamaica Dollar liquid balances remain adequate. To ensure that orderly conditions are maintained, Bank of Jamaica has taken some pre-emptive measures to assure financial institutions and the public of adequate access to both Jamaica Dollar and foreign currency liquidity during this challenging period. There are a total of eight such measures, three in respect of foreign currency and five to do with Jamaica dollar liquidity.”
The central bank introduced a number of measures including the continued support of the foreign exchange needs of businesses in the real sector through direct sales to authorized dealers and Cambios, as needed. Increased limit on the foreign currency net open positions of authorized dealers by 5 percentage points.
The central bank states that it stands ready to expand the volume of foreign currency swap arrangements with authorized dealers. The stock of outstanding swap contracts now totals US$86 million.
The Bank commenced a bond-buying programme of GOJ securities on the secondary market from financial institutions and is prepared to effect early redemption BOJ securities. The Bank has so far purchased $26.3 billion GOJ instruments.
BOJ removed the limit on the amounts that deposit-taking institutions (DTIs) can borrow overnight without being charged a penal rate.
BOJ interest cuts overnight rate.
Effective today, we have re-introduced a longer-term lending facility, whereby Jamaica Dollar liquidity will be made available to DTIs for periods of up to six months. This enhances the ability of these institutions to secure their liquidity needs over a longer horizon.
We will re-activate an intermediation facility where BOJ will use its balance sheet to facilitate transactions between holders of liquid balances and others who require liquidity if needed. This facility should support a more even distribution of liquidity in the financial system in a context where institutions who could not access inter-bank loans because of the limits placed on them by lenders, can now do so indirectly with the central bank standing in the middle of the transaction.
As of 25 March 2020, the total value of liquidity assistance provided by the BOJ to the market via its short-term lending facilities and its asset purchase programme amounted to $57 billion.
“We believe that these measures will help to facilitate the smooth functioning of the credit market. Support inflation remaining within the inflation target of 4 percent to 6 percent over the ensuing eight quarters and will augment the fiscal measures already put in place by the Government,“ the BOJ governor stated.
The economic outlook, however, is characterized by significant uncertainty relating to the spread of the virus and the consequent depth and duration of the economic impact. In the near term, some upward price pressures can be expected due to supply chain disruptions and weather-related increases in agricultural prices. However, these will be offset by a sharp decline in oil prices and weaker consumer spending power, given the expected decline in economic activity. If the domestic and external responses to the pandemic have to be sustained for most of next fiscal year, the Jamaican economy will contract significantly. In this context, we expect inflation to be at the lower end of the 4.0 percent to 6.0 percent range over the fiscal year as well as the ensuing eight quarters.
The near-term outlook now, however, reflects significant challenges and heightened uncertainty due to COVID-19. Our monetary policy measures, along with the Government’s fiscal stimulus, are aimed at mitigating the impact of this pandemic on the economy and supporting a speedy recovery once the crisis has passed. BOJ states that it will continue to monitor the effects of COVID-19 on the economy closely. The central bank also indicates that it stands ready to deploy additional measures to ensure the continued smooth flow of liquidity to all participants in the Jamaican financial system and to maintain orderly conditions within the foreign exchange market. Actions the BOJ could take include a reduction of the policy rate and the cash reserves requirement,
Sharp slash to interest rates
Bank of Jamaica slashed their overnight policy interest rate by a hefty 50 basis points to 0.75 percent per annum, effective 20 May 2019.
This decision reflects Bank of Jamaica’s assessment that inflation will remain low for until the end of 2020 as well as provide added stimulant for faster economic growth.
The reality is that there is a huge disparity between the move by the central bank and government policy. While the central bank lowers the rate to stimulate the economy, the government has artificially helped in keeping bank lending rates much higher than needed by taxing customers of banks by high taxes on banks that is resulting in interest rates being around 3 percent points higher than they should. This is where the focus needs to be and not on lowering on savings rate.
Low inflation is here to stay, despite the central bank’s continued focus on an excessively high 4 to 6 percent range. The lowering of interest rates is hurting savers particularly pensioners who have to rely on savings.
According to Bank of Jamaica, the decision is intended to stimulate an even faster expansion in private sector credit which should lead to higher economic activity, consistent with the inflation target. The move also comes at the same time that the bank announced the lowering of the cash reserves that commercial banks need to keep with the central.
What are the implications, investors looking for yields on local bonds will be getting less on the dollar for savings. Stocks will become more attractive as dividends in a number of cases are paying more than Treasury bill rates that sits at 2 percent per annum. Real estate will benefit from more demand as an alternate form of investing.
BOJ chops policy rate
The overnight policy rate was chopped by an unusually large 20 percent by Bank of Jamaica (BOJ) to take effect on Thursday 28 June 2018, as local prices deflated for the year to May.
BOJ announced its decision to lower the policy rate by an above the more accepted 25 basis points by slashing the rate by 50 basis points to 2 percent. The falls also come as a result on the continued fall in June’s Treasury bill rates that had fallen just around the overnight rate and against a high level of liquidity in the financial system.
Bank of Jamaica’s decision to increase monetary policy accommodation reflects its assessment that, inflation over the June to December 2018 quarters is likely to remain below the target of 4 percent to 6 percent and that the previously projected increase in inflation towards the centre of the target in the March 2019 quarter is at risk of coming in at a lower level.
According to the BOJ,” in March, April and May 2018, inflation fell below the lower end of the Bank’s inflation target of 4 percent to 6 percent.” Data released by Statistical Institute of Jamaica reported Jamaica as having recorded a period of deflation for the three months. BOJ also stated that “core inflation (measured by changes in the CPI excluding agriculture and fuel) has also been low, in the region of 2 percent to 3 percent. The main factors that contributed to inflation being lower than the target included a stronger-than-anticipated recovery in agricultural supplies following adverse weather shocks in 2017, lower-than-forecasted imported inflation (associated with an appreciation in the Jamaican dollar over the year to April 2018 and a reduction in the pass-through of oil prices to inflation) and weaker-than anticipated domestic demand.”
The Bank’s view on inflation for the remainder of 2018 is largely predicated on expectations for continued weak domestic demand, which is being constrained by tight fiscal policy and increased uncertainties about global trade. The assessment also reflects the expectation for agricultural food prices to remain low for longer than previously anticipated and the possibility that international oil prices could be lower than previously projected. In the medium-term, the Bank’s outlook for inflation continues to reflect a sluggish recovery in economic activity.
The decision to loosen the policy stance is aimed at fostering greater credit expansion and a faster pace of GDP growth which will support inflation returning to the target of 4 percent to 6 percent.
More fall in Treasury bill rates
Government of Jamaica Treasury bill sample
At the latest Treasury bill auction, the average rate on the 91 days bill declined to 2.544 percent from 2.71 percent at the May auction, while the 182 days instrument average rate dipped to an average of 2.656 percent from 2.83 percent for May. The two offerings of $700 million each, attracted a total of just over $5.3 billion, an indication of continued high liquidity in the market.
The continued fall in rates comes against the back ground of negative inflation of 0.6 percent up to April, including deflation of 0.40 percent in April.
Lower interest rates ahead
Treasury bill rates on the decline and heading lower.
Investors chased $1.8 billion in Government of Jamaica Treasury Bills on offer on August 16 and pushed down the rates lower than in July, in the process.
The fall in rates helped the country’s central bank to lower its new benchmark overnight rate, by 25 basis points to 3.5 percent effective Friday August 25. The Treasury bill offerings, in tranches of $600 million each, replace $1.32 billion that matured in August. The offers with maturities of 91 days, 182 days and 273 days, resulted in average rates of 5.49 percent for the 91 days instrument, down from 5.63 percent in July, 5.99 percent for the 182 days bill down from 6.13 percent, with the 273 days bill, clearing at an average of 6.32 percent down from 6.5 percent in May.
The trend in interest rates is clear, with the downward drift resuming and needs to break below 5.8 percent for a sustained decline to take hold. It will only be a while, for Treasury bill rates to hit 4.5 percent but that is unlikely to happen until 2018. The accompanying chart shows the movement in the 182 days Treasury bill rate in red within a downward sloping channel pointing to lower rates ahead.
Stocks shrug off interest rate rise
The latest issue of Treasury bill offerings saw the 182 instrument climbing 40 basis points to 6.2 percent while the 91 days T-bill rose marginally to virtually hold at 5.70 percent just a tad above the average in October.
The 28 day T-bill slipped from 5.78 percent to 5.70 percent. At the same time the main market All Jamaica Composite index continues to climb with some companies posting good increased profits.
The rise in the 192 days instrument comes against the back drop of stability in the exchange rate for November to date, very low inflation that seems headed to around than 2 percent for 2016. The change in rates also comes against the change in Bank of Jamaica policy to offer Certificate of Deposits daily to the market to bid on.
2016 T-Bill rates slow JSE gains
Rates on Treasury bill slipped in the latest issues for October with the 91 days instrument coming in at 5.7 percent, down from 5.86 percent in September and the 28 days falling to 5.78 percent a decline from 5.84 percent previously.
The 192 days Treasury bill rate inched up from 5.81 percent to 5.83 percent. The latest rate out turn, comes off changes in rates with the 192 days instrument rate at 5.75 percent February 2013, rising to hit 9.11 percent in March 2014 and been on the decline since, with a few minor hiccups along the way. The trend continues downwards with the rate of decline having slowed markedly with the Bank of Jamaica repo rate set at 5.25 percent since May.
In June, the 192 days rate climbed to 6.01 percent from a 2016 low of 5.73 percent in February, at the same time, the 91 days instrument, fell to 5.65 percent in April and moved up to 5.86 in June and September. The 28 days T-bill fell to a 2016 low of 5.37 percent in April but rose to 5.95 percent in August.
The stock market has been heavily influenced by the decline in interest rates in late 2014 to the end of 2015 has struggled since, with rates being flat in 2016 with a few cases of it having risen.
Falling Interest rates
Interest rates payable on government of Jamaica latest Treasury bills fell for the 28 and 91 days instruments but the rate for the 182 days that was below the 91 days instrument normalized by going above it this time compared to lower rates for the longer term instrument at the close of the February auction.
At the latest auction the 91 days T-bill ended up at 5.75 percent and was down by 25.4 basis point while the 28 days instrument fell by 15 basis points to 5.38 percent while the 182 days rose by 10 basis points to 5.83 percent, at the March 2015 auction this tenure of T-bill was at 7 percent and is down by 17 percent.
