BOJ now paying more than 4.5% on CDs

Interest rates rose to 4.53 percent in the latest Bank of Jamaica 30 day CD offering of $9.5 billion on Wednesday this week, up from 4.17 percent on Wednesday, October 13 and ended with total CDs outstanding falling by $2 billion to $44.5 billion, but there are signs that rates may be peaking, at least for now.
Signs that the rates may be peaking for a while are visible by the decline in the highest bidding rates and the much larger sum applied for at the minimum rate compared to the previous auction. The highest rate payable on the CDs is 5.5 percent, while the lowest rate applied for was 3.75 percent for $2.5 billion, this contrast with the previous auction in which the lowest bid was just $58 million at 3 percent. The highest submitted bid rate came in at 7 percent and is down from 7.99 percent in the previous auction. The auction attracted $14.74 billion from 42 applications, with 24 being successful.

BOJ paying 4 times July rates

It now costs the Bank of Jamaica nearly four times as much to manage the financial market as it did in July this year. After a long period of easy money, the country’s central bank recently announced that they were about to end the easy money policy in light of increasing inflation.
The most recent offer of CDs on Wednesday, September 22, fetched an average interest rate of 2.15 percent, with the highest rate of a successful bid being 2.99 percent and the lowest 1.75 percent. These rates are up from the previous auction, earlier in the month.
The outstanding number of CDs sits at $44 billion, up from $40 billion at the end of the month and $35 billion at the beginning of August. This week’s issue attracted 43 bids amounting to $14.77 billion for the total of $11.5 billion offer for the 30 days instrument. Only 29 submissions were successful.
On September 1st, an offer of $9 billion attracted 40 bids amounting to $14 billion. Only 18 were successful, resulting in an average rate of $1.51 percent, with the lowest bid coming in at 0.50 percent and the highest at 4.25 percent. The highest successful bid got 2 percent.
At the beginning of August, when the total amount of CDs was $35 billion, BOJ offered just $8 billion into the market and resulted in bids of $20.22 billion and resulted in an average interest rate of 0.59 percent, with the highest successful bid ending with a yield of just 0.62 percent, just higher than the banks overnight rate of 0.50 percent.
If the higher rates hold well into next year and beyond, there will be winners and losers. Banks with short term interest bearing instruments will enjoy a rise in revenues and on loans. Those with long data instruments will see capital losses unless their investment portfolio is balanced. Savers should see some increase in their interest income while borrowers will face increased interest costs. The move is likely to result in more appreciation of the Jamaican Dollar up to a certain level.

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 holds policy rate

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Bank of Jamaica maintains the policy interest rate at 2.75 percent, the central bank stated on Tuesday. The rate is paid by the central for the placement funds overnight placements with Bank of Jamaica and helps in guiding the setting of rates in the wider economy.
“This policy stance reflects the Bank’s assessment that headline inflation for the next eight quarters should remain within the target of 4 percent to 6 percent, with the risks assessed to be balanced. Over the next three quarters, inflation is expected to track close to the lower bound of the target, primarily reflecting a decline in food prices as a result of a recovery in agricultural supplies. Thereafter, headline inflation is expected to converge towards the centre of the target,” the central bank stated.

Jamaica’s Central Bank in downtown Kingston.

“The outlook for inflation continues to be underpinned by the expectation that the Government will maintain a strong fiscal performance in alignment with the fiscal rules. There remains a risk that GDP growth will be slower than anticipated given the influence of external events.”
Bank of Jamaica stated that the “decision to maintain an accommodative policy stance is aimed at supporting further credit expansion and faster GDP growth. When adjusted for expected inflation, the policy rate remains negative in real terms in a context of high liquidity in financial markets. These conditions are considered to be appropriate at this time given the weaker-than-desirable pace of credit expansion. The policy stance has supported downward adjustments to yields on medium and long-term GOJ bonds in recent times and these downward adjustments are expected to flow through to loan rates.
Jamaica’s macroeconomic indicators remain positive. Inflation expectations remain low and anchored around Bank of Jamaica’s target, international reserves are increasing, the current account of the balance of payments is low and projected to remain at sustainable levels, market interest rates are falling and fiscal performance continues to be strong.”

Treasury-bill rates fall again

Government of Jamaica Treasury bill sample

Government of Jamaica Treasury bill sample

The amount of funds trying to find a home over the next 3 months, jumped sharply to $903,521,900 from September’s $641,904,600, chasing after the $400 million 91 days Treasury bills offered for October.
The Treasury bill for the period Friday, October 24 to mature on Friday, January 23 next year, attracted an average yield of 7.336 percent, down from 7.46952 percent, at the September auction. At the August auction the average rate out turn was 7.46767 percent. The yield for July was an average of 7.63643 percent, for the June issue 7.65893 percent and 8.2 percent in May, for the Treasury bill of same duration.
The offer of 182 days duration, maturing on April 24 next year, generates an average interest rate yield of 7.73187 percent, a decline from 7.99887 percent, at the September auction, 8.11578 percent, in August, 8.21982 percent at the July’s auction and 8.36502 percent for the June issue, of the same duration. At the May Treasury bill auction, the rate came out at 8.932 percent.

T-bills chased in September, push down rate

Government of Jamaica Treasury bill sample

Government of Jamaica Treasury bill sample

The amount of funds trying to find a home over the next 6 months, jumped sharply to $1,050,907,900 that chased, the $400 million 182 days Treasury bills offered for September, compared to $745,290,300 in August.
Investors are clearly seeing a continuing trend of lower rates into the future, and moved their focus to the longer end of the Treasury bill spectrum and less so on the shorter term ones. The offer of 182 days duration, matures on March 20 next year, will generate an average interest rate yield of 7.99887 percent, down from 8.11578 percent in August, 8.21982 percent at the July’s auction and 8.36502 percent for the June issue, of the same duration. At the May Treasury bill auction, the rate came out at 8.932 percent.
The Treasury bill for the period Friday, September 19, maturing on Friday, December 19 this year, for the duration of 91 days, attracted bids of $641,904,600 (August $639,068,500 and July $732,981,900) for the $400,000,000 on offer. The average yield came out at 7.46952 percent, slightly up on the 7.46767 percent average rate out turn in August. The rate for the June issue was 7.65893 percent and 8.2 percent in May, for the Treasury bill of same duration.

Ja interest rates on slow downward drift

TBills280x150Rates on Government of Jamaica Treasury Bills, have been on a slow drift downwards from levels attained earlier this year. The trend is expected to continue while the rate of exchange for the local dollar, remains fairly stable and inflation is kept under control.
The Treasury bill for the period Friday, August 22 to maturity on Friday, November 21 this year, for the duration of 91 days, attracted bids of $639,068,500, (July $732,981,900) for the $400,000,000 on offer, to yield an average of 7.46767 percent, down from 7.63643 percent average rate out turn in July. The arte for the June issue was 7.65893 percent and in May, the rate was 8.2 percent for the Treasury bill of same duration.
The offer for 182 days duration, matures on February 20 next year and will generate an average interest rate yield of 8.11578 percent down from 8.21982 percent at the July’s auction and 8.36502 percent for the June issue of the same duration. At the May Treasury bill auction, the rate came out was 8.932 percent. $745,290,300 went after the $400 million offered for the latest issue.
New BOJ CDs| At the same time, Bank of Jamaica is offering both US dollar denominated medium term Certificate of deposit instruments and local Jamaica dollar instrument to the market. The US dollar bonds are for an unlimited amount and will pay interest semi-annually.
The offerings are, BOJ FR USD-CD 2018K is for a duration of 4-years at a fixed coupon of 4.50 percent per annum. (ii) The offer of BOJ FR USD-CD 2019G is for 5-years and offers a fixed coupon of 5 percent per annum. (iii) The offer of BOJ FR USD-CD 2021 is for an unlimited amount. The tenor of this instrument is 7-years and offers a fixed coupon of 5.50 percent per annum.
(iv) The offer of BOJ VR-CD 2015AE is for an unlimited amount. The tenor of this instrument is 364-days. The instrument re-prices semi-annually at 0.25 percentage point above the six month GOJ Treasury Bill rate existing at the start of each re-pricing period. The initial coupon for the first six months will therefore be the six month GOJ Treasury Bill rate of 8.12 per cent, plus 0.25 percentage point.

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