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THE interest rate on the Bank of Jamaica's (BOJ's) 30-day Certificates of Deposit will inch down effective tomorrow, Monday, February 25.
The bank yesterday announced that the rate is to fall by 50 basis points to 5.75 per cent per annum.
In a release, the central bank said the revision comes against the background of generally weak economic conditions and recently approved revenue measures aimed at further strengthening fiscal consolidation.
The bank explained that the action followed the reduction in the interest rate on Government securities under the National Debt Exchange (NDX), and against the background of the staff level agreement between the Government and the International Monetary Fund on a medium-term economic programme.
Despite receiving buy-in from more than 97 per cent of bond holders, the Government last Friday announced an extension of the deadline for the debt exchange, under which bond holders agreed to give the Government much-needed breathing space by accepting reduced interest rates as well as an extension of the maturity date of their respective investment instruments.
The decision by the central bank to lower interest rates should create a welcome ripple effect across the local financial sector, according to economist and group strategist at Scotiabank Jamaica Dr Adrian Stokes.
"It means that the Bank of Jamaica is getting more expansionary in its monetary policy, which means that it is creating an easier monetary situation, and that's because of the NDX and the new coupon rates on those bonds afforded the Bank of Jamaica the ability to cut the rates," Stokes explained.
"The Bank of Jamaica controls what's called short rate or short-term rate and therefore we will see short-term rates being lowered accordingly," he said.
"The Bank of Jamaica has less control over longer-term rates and those are more market determined. But they (long-term rates) usually take a cue from what's happening with the short-term rate. So we may see some adjustments in long-term rates, for example, mortgages," said Stokes as he spoke with the Sunday Observer yesterday.
BOJ Governor Bryan Wynter (left) listens to Finance Minister Dr Peter Phillips at a recent press conference.
STOKES... we will see short-term
rates being lowered accordingly
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