The downward trend of interest rates expected from the Jamaica Debt Exchange appears to have outpaced initial projections made by the International Monetary Fund (IMF), while at least one investor has taken below three per cent on treasury bills.

According to the IMF Article IV document at the end of April, which had supported Jamaica’s application for a borrowing arrangement with the IMF approved in early February, Jamaica’s treasury bill rate was projected to be 11 per cent at the end of fiscal year 2010/2011 and was further expected to fall to 9.8 per cent in the fiscal year 2011/2012. The average rates was for each fiscal year were projected at 13.1 per cent and 10.6 per cent, respectively.

At the end of April, only one month into the new fiscal year, interest rates were already well ahead of the March 2011 target.

Since then, interest rates have fallen further, with the key 91-day rate falling to 8.52 per cent, and the 28-day yield averaging 8.98 per cent at the most recent auction on June 23. This followed the recent cut in the 30-day Bank of Jamaica Certificate of Deposit rate from 9.5 per cent to 9 per cent on June 17th. In short, rates have already fallen below the 9.8 per cent target for March 2012.

Perhaps most surprisingly, the full allotment yield for the auction varied between 2.75 per cent and 8.79 per cent, suggesting at least one bidder had been filled at a very low level of below three per cent.

At the end of April, Minister of Finance and the Public Service, Audley Shaw, had noted that the interest rate on Treasury Bills of 9.97 per cent for three-month paper was the lowest rate in 28 years and indicative of the success of the debt exchange and growing confidence in the Jamaican economy.

“The last time interest rates on Treasury Bill were this low was in 1982. This means that the stakeholders are buying into the post debt exchange model of lower interest rates”, he said.

Market reports suggest that a factor supporting lower Jamaican interest rates was that some local institutions who had been long on US dollars had decided to sell their positions, as in addition to getting the lower interest rates on their US dollar holdings, their balance sheets would be negatively impacted by the revaluation of the Jamaican dollar against the US.