By Dennise Williams, Staff ReporterTHE BANK of Jamaica (BoJ) has lowered rates effective April 19. Rates have dropped from 20 to 50 basis points from the 30-day rate now standing at 14.40 per cent to the 365-day rate attracting 16.90 per cent.
According to the BoJ, "This general reduction in interest rates occurs in the context of continued stability in the foreign exchange market and a steady improvement in the net international reserves. In addition, the prospects for stronger economic growth and a lowering of the fiscal deficit lend further support to the BoJ's objective of single-digit inflation over the next 12 months."
And this rate reduction has had a positive effect on the local currency. According to Keith Collister, business development manager at First Global Stockbrokers, "The market went as low as J$60.62: US$1.00 reacting to the news that the BoJ cut interest rates across the board, but closed at J$60.64: US$1.00."
Are rates really heading down?
However, at least one analyst points to the fact that there is a mixed message in the market place. The Ministry of Finance (MoF) has put out a debenture that offers a much higher interest rate than the new lower BoJ rates.
This debenture is an unlimited instrument, which is believed to be aimed at the $57 billion worth of maturities and interest payments coming on stream by the end of this month. Karen Fitzritson, financial analyst and director of Fitzritson & Associates comments. "There are definitely mixed signals. On one hand, the BoJ dropped the rates, which makes the stock market more attractive.
But on the other hand, the MoF comes with their 17 per cent debenture to mop up liquidity. It would be interesting if this debenture is an indication of gradually increasing interest rate trends. It will be very interesting to see where investors are going to put their funds."
