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Local News>Analysts applaud BoJ rate hikeSabrina N. Gordon - Business Reporter |
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In a pre-emptive move, the central bank this week adjusted interest rates, hoping to tease money from the market ahead of expected floods of cash from maturing debt.
The one-point hike on all five Bank of Jamaica (BoJ) open-market tenors pushed rates as high as 13 per cent on the 180-day instrument, while the 30-day is now priced at 12.65 per cent.
That top-end rate is a closer mirror of the performance of the benchmark 182-day Treasury Bill which yielded 13.34 per cent in the last auction in December.
"The revised rate structure offers investors a range of options that more closely reflect current market rates," the BoJ said Wednesday.
Market Signal
The central bank does not 'set' interest rates, but its open-market instruments, which are sold to primary dealers, are meant as a market signal of where the monetary authority wants the rate to go.
Analysts on Thursday viewed the central bank's move as positive, though it will be more costly for Government to buy new debt and service its variable rate instruments.
Brokers also signalled that they were not averse to the central bank nudging its open-market rates even higher.
"The rate adjustments still have not reached the levels that these T-Bill rates are at - 12.88 per cent 13.25 per cent - not to mention where the variable rate LRS's and investment debenture rates are resetting at now, 1.5 to 2.0 per cent above the weighted average T-Bill rates," said Christopher ChinLoy of Derhing Bunting and Golding.
This latest rate hike comes after a sustained period of cuts, and also follows a period of interventions in the foreign exchange market.
The central bank has essentially been throwing hard currency at the market to ensure that supplies are sufficient to meet demand, to keep the value of the Jamaican dollar from eroding too fast against the U.S.
The Jamaican dollar traded spot against the US at $70.77.
But after months of shoring up the JMD, the battle scars are showing. This week, the central bank reported net international reserves of US$1.88 billion as at December 2007, which though a 3.8 per cent improvement on the November reserves, are US$400 below the NIR's peak position reached less than a year ago.
The BoJ said its adjustment of interest rates would also help to mop up liquidity linked to reflows from currency issued for the Christmas season. At the end of December, currency in circulation was estimated at $49 billion, representing a 15 per cent increase within the year.
Rebalancing
Analysts also see the rate cut as a rebalancing to reflect inflation levels, last reported in November at 14.0 per cent calendar year-to-date, and 11.2 per cent for the fiscal year-to-date.
"Inflation numbers running ahead of interest rates in the wider market makes it more attractive to dump Jamaican dollars," said financial analyst John Jackson.
Philip Armstrong, senior vice-president of Capital Markets at Pan Caribbean, also believes the measure should help discourage investors from buying U.S. dollars aggressively because of the heavy Jamaican dollar liquidity that is expected on the market in the next few weeks without impacting the fiscal accounts in any significant way.
"I thought it was a very good and proactive move by the BoJ to move the benchmark rates in line with the market," he said.
Added Jackson: "A one percentage point will not kill, but it can add to the cost of debt servicing for Government if it remains in place for a few month when the variable rate bonds have to be repriced."
sabrina.gordon@gleanerjm.com