Updated: 20-12-2024 - 12:00PM 6 4 CLOSED
Mar 01, 2017
The Bank of Jamaica (BOJ), which is now using overnight rates as its signal rate for changes in monetary policy, has reset rates for its standing liquidity facility (SLF) down to seven per cent.
The SLF, available on demand, provides liquidity support to banks.
Previously the BOJ had dialled up overnight lending rates from three per cent on September 1, 2016 to 7.25 per cent .
The new rate of seven per cent, announced on February 27, takes effect tomorrow.
The bank is also advising that the interest rate payable on overnight deposits will increase from three per cent to four per cent. The result will be a narrowing of the interest rate corridor from 425 basis points to 300 basis points.
In September last year, the BOJ started transitioning its policy rate to an overnight interest rate, replacing use of the benchmark 30-day certificate of deposit (CD). On September 1, the Bank increased the rate on the overnight deposit by 0.25 per cent to three per cent.
As indicated, the central bank is adjusting its initial interest rate corridor (IRC) as a route to tighter monetary policy.
An IRC is a system for guiding short-term market interest rates towards the central bank target/policy rate.It is made up of the rate at which the central bank lends to banks (typically an overnight lending rate) and a rate at which it takes deposits from them (deposit rate).
The overnight deposit rate forms the floor of the IRC and the interest rate on the SLF serving as the ceiling of the IRC.
The IRC system is intended to help ensure that money market interest rates stay within a close range around the policy rate.
The BOJ, in its previous notice of the changes to local financial institutions, said actions to be taken over a six-month period from September 1 would include changes in the frequency of the offer of the 30-day instrument.
Effective October 3, the bank began to offer 30-day CDs in unlimited amounts on three days of the week: Monday, Wednesday and Friday. Additionally, the 365-day CD, issued by competitive multiple-price auctions, resumed once weekly.
Eventually, the 30-day rate will cease being the bank’s policy rate.
On Monday, in the release on the overnight interest rate change, the BOJ noted that it continues to offer unlimited amounts of 30-day certificates of deposit every week on Fridays at the signal rate, which remains unchanged at 5.00 per cent per annum.
Source:
Jamaica Observer
Wednesday March 1, 2017
http://www.jamaicaobserver.com/business/Bank-of-Jamaica-resets-overnight-rates_91011