By Dennise Williams, Staff ReporterTHE GOVERNMENT has recently announced two investment instruments, apparently with the aim of reducing the current liquidity and expected new liquidity in the money market.
Overall, interest rates are in line with previous offers and despite world oil prices and other inflationary pressures, the Bank of Jamaica (BoJ) says it is confident that rates will stay on track.
First on offer is a Treasury Bill for a total of $400 million to replace a previously issued Treasury Bill in the same amount maturing on August 27. The new offer closes on August 25 and has a tenor of 182 days.
SERIES AK
Simultaneously, the Govern-ment is offering an investment debenture dubbed Series AK, which seeks an unlimited amount of funds and pays 16.75 per cent. The instrument matures in 27 months and the offers also close on August 25. Yet, despite the BoJ's confidence in its monetary policies expressed in its August 18 quarterly economic briefing, the market has not fully embraced the Series AK as its interest rate is similar to shorter termed instruments. However, traders do expect the six-month Treasury Bill to do well.
ONE GOOD THING
Sonia Owen, Barita Invest-ments trading manager, said, "Right now the one-year repurchase agreement (repo) is paying 16.40 per cent and so the Series AK interest rate is in line with the repo rates but this catch is that it is at twice the time. One good thing that I can say is that this debenture pays interest quarterly and this will help investors with their liquidity."
In looking at Series AK, Claudette Crooks, business development manager of Today's Money said, "For the debenture, so far the response has been lukewarm. Investors usually resist interest rates below 17 per cent. That is the reading I am getting today and I don't see any changes by the close date."
Karen Fitz Ritson, financial analyst and director of Fitz Ritson & Associates agrees. "Sophisticated investors will approach Series AK with caution. People are apprehensive to lock up their money for more than a year with interest rates as they are."
And while the experts agree with Ms. Crooks that "interest rates are basically stable," there is concern about global forces negatively affecting the Jamaican financial landscape. Ms. Crooks said, "The real test on interest rates will be at the end of September as this gives an idea of where prices will be. If the lowering of oil prices extends beyond September, then the BoJ will breath a sigh of relief.
STABLE CURRENCY
"If not, the central bank will have to act to maintain a stable currency and investor confidence. Otherwise people will move to invest their money where they view a greater stability, that is, in US dollars."
Ms. Fitz Ritson said the BoJ will pull out all stops to contain interest rates. "Last year, interest rates spiked so high, there is now a concerted effort to keep rates low."
