Bank of Jamaica Raises CD Rates

In an attempt to stabilize the local currency, the Bank of Jamaica says it has increased interest rates for certificates of deposits. Rates for CDs with 30-day tenors increased to 17.00% from 14.65%, 60-day CDs to 17.50% from 14.85%, 90-day to 20.00% from 15.05%, 120-day to 20.20% from 15.15%, 180-day to 21.50% from 15.35% and 365-day to 24.00% from 16.70%. The BoJ says a sharp rise in the yields on bonds issued by the local government and Jamaican companies has increased demand for foreign exchange by securities dealers to meet margin calls from overseas creditors, to which the BoJ responded by providing dollars as needed. “This has triggered a disorderly depreciation in the exchange rate, which if allowed to persist, will only precipitate higher inflation and greater macroeconomic instability,” says the bank. It also notes that domestic financial institutions hold significant amounts of its securities that are due to mature over the next three weeks and the resulting increased JMD liquidity could add further pressure on the exchange rate. JPMorgan notes that the relatively low level of FX reserves – $1.7bn-$1.8bn – prompts the BoJ to use rates rather than direct FX intervention to contain currency pressure. “The latest rate hike should help stabilize the Jamaican dollar in the coming weeks, which should also benefit from seasonal FX inflows (remittances) and lower FX demand from a falling oil import bill,” JPM notes. On December 2, the JMD closed at 78.00 per dollar. So far this year, the JMD has reached a low of 68.80 and a high of 80.00 per USD.