Interest rates on Bank of Jamaica dropped to an average of 10.6 percent at the latest CD auction on Wednesday, April 24, following an offer of $34.5 billion to the public in a competitive price auction. The previous auction of $39 5 billion attracted only $37.8 billion in bids, resulting in an average rate of 11.032 percent.
In today’s auction bids amounting to just over $55 billion were received from 399 applications but only 257 were satisfied, with rates ranging from 9 to 11 percent. The latest offer brings the total amount of 30 days CDS to $125.7 billion which is down sharply from $155 billion on April 5, this year with the averaget rate then of 11.59 percent.
On April 22 the bank offered $14 billion in a 25 month CD that attracted $29 billion in bids and resulted in an average rate of 8.93 percent and put the total amounts in two year CDs to nearly $60 billion.
BOJ engineers cut in CDs interest rates
BOJ CD rates holding steady
Fresh from hiking their overnight policy rate by 0.50 percent to 2 percent, Bank of Jamaica latest CD offer produced an average yield of 4.34 percent, with the lowest bid coming in at 4 percent.
BOJ offered to sell $9.5 billion of CDs and attracted twice that amount at $18.24 billion. The highest rate payable by the central bank is 4.475 percent, with only 44 percent of the amount of the bid being successful.
The previous CD auction held on November 9 attracted $17 billion for the $12 billion offered and resulted in an average yield of 4.22 percent, with the highest successful bidder getting 91 percent of the amount they placed in the auction with an interest rate of 4.65 percent.
Bank of Jamaica cuts rates
Bank of Jamaica cut interest rate by 25 basis points effective today April 5 resulting in the rate offered on its 30-day certificate of deposit, the policy rate, falling to 4.75 percent from 5 percent.
The last time the rate was adjusted was in May 2016 when 0.25 percent was cut off the 30-day certificate of deposit. “The rates applicable to the Bank’s overnight lending and deposit facilities that are linked to the policy rate will correspondingly fall by 0.25 percentage points,” the central bank stated.
The decline comes against the back ground of a slight decrease in the 192 Treasury bill rate rate at the March auction and IC Insider forecast that Treasury bill rates should fall towards 4 percent by 2018.
The central bank cited a number of developments that led to the recent cut. The adjustment reflects “the Bank’s assessment that inflation for FY2017/18 will be within BOJ’s inflation target of 4 percent to 6 percent for the fiscal year. This assessment has been reinforced by the Government’s strong commitment to maintaining a 7 percent primary surplus for FY2017/18 and to meet the overall public sector fiscal targets under the precautionary Stand-By Arrangement, as approved by Parliament. The continued tight fiscal policy posture supports an easing in monetary conditions.”
“Jamaica’s main economic indicators continue to improve in the context of a strong reform programme and a favourable external environment. Economic activity continues to expand although at a slower pace than its potential rate of growth. Other key macroeconomic indicators have been reflecting generally positive trends: inflation expectations remain firmly anchored in single digits, international reserves remain strong, the current account of the balance of payments is projected to remain at a sustainable level, private sector credit is expanding strongly and market interest rates have been trending downwards.
The change in rates has implication for investments and is very positive for the stock and real estate markets and should lead to a rise in value around 5 percent as a result. The move should also result in more demand for preference shares on the local market as they become more appealing with their fixed coupon rates and help boost lending at banks and improve their profit.
Bank of Jamaica cuts interest rate
BOJ sold US dollars into the system on Monday
The rate was last reduced from 5.50 percent to 5.25 on August 18, 2015.
According to the central bank “the adjustment to the signal rate reflects the Bank’s assessment that the inflation outlook for the fiscal year 2016/17 will continue to be favourable and is expected to be within the lower half of the 4.5 percent to 6.5 percent target range for the fiscal period. Although growth has been weaker than expected, macroeconomic indicators have been reflecting generally positive trends. Inflation expectations remain firmly anchored in single digits, international reserves are above adequacy levels, the current account of the balance of payments is projected to be at a sustainable level, private sector credit is expanding, market interest rates have been trending downwards and the fiscal accounts continue to be strong.”
The reduction follows falls in Treasury bill rates that are now just ahead of the pre adjusted CD rate.
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.
BOJ cut interest rate
The Bank of Jamaica’s 30-day Certificate of Deposit interest rate was reduced on Friday, 17 April 2015 Thursday to 5.50 percent from 5.75 percent, the central bank announced on Thursday. This is the first such reduction since February 2013, when the rate was cut by 50 basis points from 6.25 percent to 5.75 percent.
BOJ in its release stated, “this adjustment to the BOJ policy rate, reflects the Bank’s expectation that the rate of increase in consumer prices is likely to remain low in the coming year”.
“The recently announced inflation rate of 4 per cent for FY 2014/15 is the lowest in 48 years. The sharper than expected decline in inflation for the fiscal year was due in part to the fall in oil prices but also to the moderation in price increases that has resulted from fiscal consolidation and economic reforms. The impact of these changes will help to moderate inflation impulses over the medium term” the central bank concluded.
The reduction is also in line with a decline in Treasury bill rates over the past year, coupled with increased inflows of foreign exchange into the system that led to some amount of revaluation of the Jamaican dollar.