Sun | Aug 18, 2019

Scotia forecasts fall in interest rates, increase in market liquidity as economy improves

Published:Sunday | July 21, 2019 | 4:01 PM
Debra Lopez Spence, (left) vice president, Sales and Service at Scotia Investments and Wealth and Tameka Mowatt-Walker, senior financial analyst, chat with Eddie Cousins of Lydford Mining Company at the Scotia Investments Client Connect and Invest breakfast series at the Marriott Courtyard in New Kingston on July 18.

A leading investment brokerage is forecasting that interest rates will decline even further and market liquidity to increase as Jamaica's economic position continue to improve in the months ahead.

“We have record growth and low interest rate …everything for Jamaica is heading in the right direction,” senior financial analyst at Scotia Investments, Tameka Walker-Mowatt, told an intimate group of high net worth clients at a breakfast meeting on Thursday at the Marriott Courtyard Hotel in New Kingston.

“Within the next year we are going see about $8 billion in liquidity coming into the market and that means interest rates are going to go lower and that means there will be opportunities for those in the equities market,” Walker-Mowatt advised clients.

This comes as the Statistical Institute of Jamaica (STATIN) reported last week that the Jamaican economy grew 1.7 per cent during the first quarter of this year. STATIN also reported that the country's unemployment is at a record low of 7.8 per cent. Interest rates on loans and mortgages are now at single digits.  

The Scotia analyst is expecting the buoyancy in the Jamaican economy to be carried by strong performances in the tourism, construction and manufacturing sectors, as visitor arrivals grow, more hotels are built and the real estate market expands to meet growing demand for housing across the island. Expansion is also expected among local manufacturing entities as well and unemployment to dip even lower.

Continuing, she said declining interest rates, stronger GDP growth with a moderate external position will make it attractive for persons and companies to refinance higher-interest debts. She also said the high liquidity in the market will make it attractive for companies seeking capitalisation to launch Initial Public Offers (IPOs).

She said the low-interest rate environment will make investing in fixed-rate bonds and coupons issued by governments and non-government entities more favourable for investors seeking higher returns. Already, she said government bonds are being oversubscribed due to the moderate liquidity in the market and the limited availability of investable assets.

Unlike Barbados and Trinidad, whose economies are currently undergoing different levels of fiscal consolidation and restructuring, Mrs Walker-Mowatt said Jamaica is expected to continue seeing strong GDP growth based on an improving fiscal platform.

The Scotia investment banker said the balance sheets of local companies are likely to improve with increased earnings and profitability as a result of the country’s favourable fiscal platform.

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