The Private Sector Organisation of Jamaica (PSOJ) is warning that the Bank of Jamaica's (BOJ) move to sharply increase interest rates on certificates of deposit will inevitably raise interest rates across the financial system, "putting more pressure on an already weak real economy".

In a release yesterday, the PSOJ lamented that the BOJ was taking this action "at a time when the global economic crisis is placing severe pressure on Jamaica".

Reason for action

According to the release, at a meeting held yesterday morning with Minister of Finance and the Public Service Audley Shaw and BOJ Governor Derick Latibeaudiere, the PSOJ was advised that part of the reason for the action was that financial institutions hold significant sums in BOJ securities that are due to mature over the next three weeks.

"The concern is that unless the Bank of Jamaica reabsorbs this liquidity, it will negatively impact the local currency's value. The authorities expect significant foreign-exchange inflows to enter the market in early January 2009 from multilateral sources," the PSOJ stated.

"We strongly believe, however, that this rise in interest rates must only be a very short-term measure, and should be reversed quickly once the authorities' concerns over the demand for foreign exchange that this Jamaican-dollar liquidity might create have subsided."