30 day CD’s available via competitive auction

Today marks the third competitive price auction of the 30-day certificate of deposits (CD’s) to primary dealers and deposit taking institutions (DTIs).  This as on June 27, 2017, the Bank of Jamaica (BOJ) announced that 30-day CD’s will be issued in fixed volumes by competitive multiple-price auctions. This announcement came on the heels on the BOJ broadcasting a change to their policy rate.  Effective July 1, 2017, the BOJ’s policy rate will be the interest it pays on overnight deposits held by deposit-taking institutions (DTI) at the BOJ.  The policy rate is used by the BOJ to signal its monetary policy stance.  Currently the overnight rate stands at 3.75% per annum. As such, the interest rates payable on the 30-day certificate of deposits will no longer be designated the policy rate.

The change to the monetary policy framework by the Bank was done to strengthen the relationship between the policy rate and market interest rates. In doing so the BOJ hopes the change will influence the spending and saving decisions made by businesses and consumers and have a greater influence on the rate of inflation in pursuit of the inflation target.

This change is the BOJ’s latest step in a series of improvements that it has been making to the monetary policy framework since 2014. According to the BOJ, “To date, these changes have included operational changes to streamline the maturities of sterilization instruments, the institutionalization of liquidity assurance to DTIs, the extension of emergency liquidity arrangements to securities dealers and the introduction of an interest rate corridor (“IRC”). The IRC, which is defined by the Bank’s overnight deposit rate (currently, 3.75 per cent per annum) as the floor and its overnight lending rate (currently, 6.75 per cent per annum) as the ceiling, has provided a clearer guide for short‐term market interest rates.”

The offer volume for today’s auction is JMD$5.50 billion while the minimum value for applications is JMD$1 million dollars.  This month’s issue is due to mature on September 08, 2017 and bears a coupon of 4.75%.  Settlement is due on August 11, 2017.

For the previous auction held on August 2, 2017, the offer volume amounted to JMD$3.50 billion at a fixed coupon rate of 4.75%.  During the auction process, a total of 26 bids were received valued at $8.44 billion, with $3.50 billion allocated with a corresponding yield of 4.86%. The lowest bid rate submitted was 4.75% with a corresponding amount of $2.42 billion while the highest bid rate submitted was 8.50% for $150 million. The highest bid rate for full allocation was 5.25%.




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