By Dennise Williams, Staff ReporterTHE BANK of Jamaica (BoJ) gave the country a late Valentine's Day present by reducing interest rates for the fourth time this year. The last interest rate change was on January 26, however, this time, it is the long-term rates that have changed. The 120-day to 365-day rates have come down from a region of 16.00 per cent to 20.00 per cent to the current rate of 15.50 per cent to 19.00 per cent (see chart).
Speaking on this rate drop, Leo Williams, managing director of JMMB Securities explains what this latest BoJ move means. "As you can see the longer end of the interest yield curve, which is usually at the higher end, is now flattening. This is quite good for the country because this allows Government to save on interest cost and allows them to bring the budget back in line. The lower interest rates means economic stability because the cost of money is lower."
Speculating on future BoJ actions, Mr. Williams states, "eventually they will bring down shorter term rates." And while the fixed income investors are faced with reduced returns, investors on the Jamaica Stock Exchange (JSE) could be doing very well. Although the JSE moved down on February 16 (the JSE index was down 301.34 points to close at 75,295.43) overall it is the place to be, according to Mr. Williams.
"The lowered rates mean that investors will be getting less on their one year repos and so they might turn their attention to the JSE to try to outdo the returns on the money market. In fact in our office (JMMB Securities) we have seen a number of our clients placing more and more funds on the equities market."
