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,

Interest rates rise sharply in March

Government of Jamaica Treasury bill (T-bill) rates reached their highest level since August last year when the average rate for the half-year instrument touched 2.01 percent and the three months hit 1.87 percent.
At the March auction, for T-bill, rates moved up from 1.337 percent in February to 1.85 percent in March for the shorter-term treasury rate and from 1.387 percent for the 192 days to 1.796 percent. The rates are coming from a low of 1.252 percent and 1.453 percent, respectively in January this year.
In January, $3.12 billion chased after the $700 million offer for the 91 days offer, in March the demand dropped sharply to just $1.05 billion, for the half T-bills, the amounts applied for fell from $2.32 billion to $1.41 billion.
On February 7, Bank of Jamaica (BOJ) 30 days CD rates averaged just 1.17 percent as $15.64 billion chased after $10 billion offered by the country’s central bank. In the March 16 auction, the average rate jumped to 3.51 percent, with the highest being 4.5 percent for $100 million as investors placed just $7.66 billion for the $8 billion BOJ offered. BOJ also offered CDS on March 11, amounting to $10 billion, with $14.15 billion going after it at an average yield of 2.78 percent.
The rise in interest rates occurs at a time of falling liquidity and the largest intake of taxes for the financial year by the government. Historically, March is the month with the highest fiscal surplus for the year as the intake of taxes is the highest. The result of the increased inflow of taxes drains liquidity from the system. This year, the situation is worsened by the $25 billion initially drained from the financial market by the Initial public offer of Trans Jamaica Highway. With the government planning to pay $73 billion to reduce the public sector debt, investors can look forward to increased liquidity before too long.

Business confidence rises

Perception of Present and Future Business Conditions rose in the December 2019 a survey, conducted on behalf of Bank of Jamaica reveals.
According to a report from Jamaica’s central bank, the Present Business Conditions Index increased to 115.8 from 111.3 recorded in the previous survey done in November. The Future Business Conditions Index rose to 127.6 from 123.6 in the November survey.
The advance in the Present Business Conditions Index reflected an increase in the number of respondents of the view that conditions are “better.” The outturn for the Future Business Conditions Index mainly reflected an increase in the proportion of respondents who believe that conditions will be “better.”
The latest report, although up is still below the 128.9 recorded for present conditions in March 2019 while future business conditions, peaked at 155.1 in December 2016 and is still well ahead of the December 2019 count and the recent peak of 153.5 in March 2019 is way ahead of the 2019 year-end result.
IC Insider.com observations are that the scores are heavily influenced by the rate of exchange of the local currency versus the United States dollar, resulting in sentiments falling when the Jamaican dollar comes under pressure and reverses when it appreciates or stays relatively stable.

BOJ sold US$30m to FX market on Friday

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BOJ interest cuts overnight rate.

Bank of Jamaica (BOJ) intervened in the foreign exchange market on Friday, October 18, the first time since July by selling US$30 million at a weighted average rate of $138.87 by means of a flash intervention.
Bank of Jamaica introduced a bidding system when they intervene in the foreign exchange market officially called “Foreign Exchange Intervention and Trading Tool (BFXITT).” The system was introduced in 2017 with the central bank buying and selling funds in the market whereby authorized dealers and Cambios had bid for the amounts on offer.
Friday’s intervention was to address temporary demand and supply imbalances in the market Jamaica’s central bank stated. Friday’s intervention is the first being made since the central bank intervened with two flash sales on July 18 and 19th this year with a total sale of US$35 million and prior to, US$30 million on July 11. In 2017 and 2018 the central bank had regular weekly scheduled interventions in the market from August to October and November, but there has been none in 2019 after BOJ lowered the amount dealers had to surrender to the central bank from amounts they bought weekly.
The amount offered for sale on Friday attracted 42 bids amounting to US$72.6 million but just 17 were accepted with the highest bid at $139.15 and the lowest at $137. Bids at $138.65 got 33.33 percent of the amount applied for.
The intervention comes against the background of the country’s Net International Reserves climbing US$162 million, from US$2.936 billion at the end of August to US$ 3.098 billion at the end of September.

BOJ cuts overnight rate to 0.5%

Bank of Jamaica cuts the overnight policy interest rate by 25 basis points to just 0.50 percent, effective Wednesday, 28 August 2019.
According to the central bank, the decision reflects the bank’s assessment that inflation is projected to average 4.3 percent over the next eight quarters, within the inflation target of 4 percent to 6 percent. Over the medium term, the forecast is for inflation to gradually approach the midpoint of the Bank’s target, albeit at a slower pace than previously expected. The inflation forecast is mainly predicated on the continued impact of low domestic demand conditions relative to the economy’s capacity, slower growth among Jamaica’s main trading partners and declines in international commodity prices. It also accounts for the impact of imminent changes in the fuel mix in the domestic energy sector on electricity rates.
As with previous reductions, the latest lowering of the policy rate is intended to stimulate a faster expansion in private sector credit, which should lead to higher economic activity.
Annual inflation to July 2019 reported by the Statistical Institute of Jamaica was 4.3 percent, up from 4.2 percent to June 2019 and 3.2 percent to July 2018. The marginal uptick in inflation mainly reflected the impact of increases in the prices of food items as well as an increase in electricity rates, BOJ stated. With this outturn, inflation remained within BOJ’s target of 4 percent to 6 percent for the third consecutive month.
Bank of Jamaica anticipates that inflation will decelerate to 3.7 percent in September 2019, as energy-related prices, fall before accelerating to 4.7 percent by December 2019 as food price inflation accelerates in the context of hot, dry weather conditions.

BOJ interest cuts overnight rate.

Inflation is expected to be supported by continued growth in domestic economic activity, partly in response to the lowering of the policy rate over the last eight quarters.
Over the March 2020 to June 2021 quarters, inflation is projected to remain low, in the range of 3 to 5 percent, mainly reflecting the impact of lower oil prices, more efficient domestic energy generation and low inflation among Jamaica’s main trading partners. The influence of these factors will, however, be offset by the impact of Bank of Jamaica’s past monetary accommodation.
Inflation is projected to return to the midpoint of the target, slowly over the ensuing three years. Of note, the projected trajectory of inflation is lower than previously forecasted. This reflects the Bank’s view that inflation expectations are lower than previously assessed and that the projected pace of expansion in domestic demand in the period will be slower due to headwinds from the global economy.

Scotia Group to pay $7.6b in dividends

Scotia to make big payout.

Scotia Group will be paying a whopping $7.6 billion in dividend in July. According to the latest quarterly report by the banking group the directors approved an interim dividend of 51 cents per share and a special dividend of $1.94 per share.
The directors state that the special dividend is to payout years of accumulated surplus that has built up over the years. The payments comes against the drop ground of net profit for the April quarter coming in a $3.295 billion versus $3.3 billion in 2018 and $5.6 billion compared to $6.76 billion year to date in 2018 with the latter being boosted by one off gain from sale of a subsidiary of $753 million.
The group reports an eleven percent growth in its loan portfolio to reach $189 billion from $171 billion in April 2018, but just 3.4 percent since October last year.
The decision to make the special payment is not surprising with the sharp cut in cash reserves requirement at the country’s central bank and the low levels of interest rates that currently prevail in the economy.

Richard Byles next BOJ governor

BOJ interest rate & cash reserves cut will help push demand in the economy.

Word reaching IC Insider.com is that the next Governor of Jamaica’s central bank will be the past CEO of Sagicor Group, Richrad Byles.
Byles has a bachelors degre in economics from the University of the West Indies and a Master degree  in National Development and Planning from the University of Bradford. He is widely accepted to have played a major role in transforimng both the PanJam group and Sagicor Group.
Bryan Wynter who serves as the current governor of the central bank demits office later this year.

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.

Prices in Jamaica plunged for December

Prices in Jamaica on average, fell sharply by 1 percent in December last, bringing inflation as measured by the country’s Consumer Price Index to 2.4 percent for the calendar year. The fall in inflation for December occurred across several main categories of goods and services.
The movement in the index for the fiscal year-to-date was 2.7 percent. The rate of increase on average is well below the target set by the government for the central bank to aim at, for the fiscal year of 4 to 6 percent. Had it not been for a spike in the rate of exchange between April and September last year, the rate for the year would have been even lower than the final numbers reported.
Food and Non Alcoholic Beverages and the Transport division declined by 1.5 percent. The fall in Food and Non-Alcoholic Beverages resulted from a decline of 6.2 percent in Vegetables, Starchy Foods due to increased supplies of agricultural produce the Statistical Institute of Jamaica (STATIN) stated. The decrease in the Transport was due to lower prices for petrol, while Housing, Water, Electricity, Gas and Other Fuels fell by 1.3 percent, due mainly to reduced rates for electricity, sewage and water rates.

BOJ senses pick up in GDP growth

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Economic activity may has picked up pace in the latter half of the year compared with the first half, with a strengthening in real GDP growth and employment over the second half of the year, Bank of Jamaica is suggesting.
The central bank was commenting on the increase in money in circulation for December. “This projected acceleration in the growth in real currency demand for December 2018 is consistent with the higher growth rate that has been evident between August and November 2018,” the central bank stated. Economic growth in the June quarter was preliminarily placed at 2.2 per cent by the Statistical institute of Jamaica.
The bank went on to say, “when the forecasted change in the general level of consumer prices is taken into account, the projected real growth in currency for the 2018 is 10.5 percent, which is higher than the real growth of 7.3 percent for the previous year.”
The projected currency stock of $128 billion at end-December 2018 represents an annual growth of 15.5 percent, an acceleration when compared with the 12.9 percent recorded at December 2017.
Bank of Jamaica projects that the value of currency issued by the Bank will increase by approximately $18 billion (or 16.5 percent) in December 2018 to end the month. The central bank states that the projected growth for the month is broadly consistent with the 16.5 percent growth recorded for December 2017 as well as the five-year average growth rate of 17.3 percent for December.
BOJ net issued $4.2 billion in currency for December up to 14, this year (representing a 3.8 percent growth for the month to date). This compares to net currency issue of $1.4 billion over the same period in 2017.