Wed | Aug 16, 2017

BOJ transitions to overnight policy interest rate

Published:Tuesday | June 27, 2017 | 6:16 PM

The Bank of Jamaica (BOJ) said that effective July 1 its policy rate will be the interest rate that it pays on overnight deposits held by deposit‐taking institutions at the central bank.

That rate is currently 3.75 per cent per annum.

The policy or signal rate is the designation given to the interest rate that signals BOJ’s monetary policy stance.

With the change, the interest rate that BOJ pays on its 30‐day certificates of deposit will no longer be designated as the policy rate.

BOJ will continue to offer 30‐day certificates of deposit to primary dealers and deposit-taking institutions but, effective July 28 they will be issued in fixed volumes by competitive multiple‐price auctions.

The Bank is making the change to the monetary policy framework in order to strengthen the relationship between the policy rate and market interest rates which, in turn, influence the spending and saving decisions made by businesses and consumers.

This means that the BOJ is able to influence the rate of inflation in pursuit of the inflation target.

The change is the most recent step in a series of improvements that the Bank has been making to the monetary policy framework since 2014i.

To date those included:

operational changes to streamline the maturities of sterilization instruments.

the institutionalization of liquidity assurance to deposit-taking institutions,

the extension of emergency liquidity arrangements to securities dealers,

and the introduction of an interest rate corridor.

The interest rate corridor, 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.

 

- business@gleanerjm.com