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BOJ Cuts Certificates Of Deposit Rates

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Effective Friday, September 30, the interest rate payable on the Bank of Jamaica’s (BOJ) 30-day Certificates of Deposit (CD) has been reduced from 6.50 percent to 6.25 percent.

The 30-day CD rate reflects the Bank’s bench mark interest rate and the latest adjustment represents a 25 basis points reduction. The current rate of 6.25 percent represents a record low, and is expected to give momentum to the downward trend of commercial interest rates.

A basis point is a unit that is equal to one hundredth of a percentage point and is often used instead of percentages, when discussing interest rates, rates of return, and other percentage-based performance metrics that can occur as fractions of a percent. The basis point is commonly used for calculating changes in interest rates, equity indexes and the yield of a fixed-income security.

According to a statement from the BOJ, the revision to the Bank’s policy rate “reflects the continued positive trends in headline and core inflation since the beginning of 2011, and the projection that the rate of domestic price increases for the full fiscal year will be within the BOJ’s target range of 6.0 per cent to 8.0 per cent.”

Core Inflation is a measure of inflation that excludes certain items that face volatile price movements. Core inflation eliminates products that can have temporary price shocks, because these shocks can diverge from the overall trend of inflation and give a false measure of inflation.

Headline inflation,on the other hand, is a measure of the total inflation within an economy, and is affected by areas of the market which may experience sudden inflationary spikes, such as food or energy.

The Central Bank indicates that the continued downward trend in the cost of living in Jamaica is predicated on the “more pessimistic outlook” for growth in the global economy, and the slower increase in the prices of international commodities.

“The more pessimistic outlook for growth in the global economy and the forecast for slower rates of increase in the prices of international commodities, particularly crude oil, have put a downward bias on domestic inflation for the rest of the fiscal year.”

The BOJ stated that these moderating factors are complemented by the continuation of relative stability in the exchange rate, and the persistence of weak but improving domestic demand.

The BOJ bulletin further explained that, “in addition, the process of fiscal consolidation continues to support the extended period of stability in the economy. This stability is being reflected in financial market prices, and has contributed to the Bank’s gross international reserves remaining well above the international benchmark of 12 weeks of projected goods and services imports.”

The Net International Reserves (NIR), as at August 31, was just over US$2.1 billion.

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Written by jamarch