Government's over-extension on its borrowings, or planned debt issues, since April has forced the central bank into action to sop up liquidity from a $6 billion GoJ investment bond that became due Monday.

The Bank of Jamaica immediately placed a 'special' two-year variable rate certificate of deposit on the market, targeted at its primary dealers and commercial banks, to draw funds out of the market.

The subscription period runs to Friday, March 2.

The instrument has a coupon of 11.8 per cent initially, and thereafter interest to be paid quarterly will accrue at the current 90-day CD rate on offer by the central bank plus a reset of 1.125 percentage points.

No new issues

The redemption of the fixed rate GOJ investment bond 2006/07 Series A comes at a time when the Finance Ministry has planned no new issues.

In fact, Finance Minister Dr Omar Davies is already $34.8 billion above target on his planned domestic borrowings between April and December. Davies had initially planned to raise $92.7 billion on the local capital markets within that eight-month span, but actually took in $129.6 billion.

Its external borrowings were more than $2 billion less than programmed in the budget.

"This offer is being made in the context of the expected high levels of liquidity beyond the normal requirements during the offer period," said the central bank.

"The high levels of liquidity is due in part to the redemption of 13.80 per cent FR GoJ Investment Bond 2006/2007 Series A."

The only debt issues since December then have been four Treasury Bills. The last two, a three-month for $400 million and a six-month for $500 million auctioned last week, yielded 11.78 per cent and 11.94 per cent, respectively.

BoJ will continue to offer its regular CDs to its dealers.

- business@gleanerjm.com