By Dennise Williams, Staff ReporterTHE EXPECTATION of lower interest rates has made the Ministry of Finance's latest Investment Debenture very attractive to investors.
This latest debenture will be open for applications from January 22 to January 28th, and will pay 22.125 per cent interest over 24 months. The most recent investment denture was a Variable Rate Investment Bond that paid 22.125 percent for six months and thereafter pegs its interest rate to the prevailing 6 months Treasury Bill rate.
"This upcoming bond will do at least as well as the Variable Rate bond," states Philip Armstrong treasurer of Manufacturers Sigma Merchant Bank. He reasons that because the Variable Rate bond will be affected by the expected rate drop, this latest bond locks in the same rate for an extended period of time.
"I think that it's attractively priced," Armstrong said. "The expectation in the market is that interest rates will go down over the next couple of months."
Sonia Owen of Barita Investments said, "it is a good rate, especially if you think that rates are heading down."
Said Orville Johnson, chairman of Today's Money Ltd, "the fact is that you are getting a high rate for 24 months where the possibility of rates falling exists. If you locked in at 22.125 percent then you are ahead of the game."
If the Government gets close to its fiscal targets, it would set the stage for interest rates to fall, Mr. Johnson said. Last year, in the first quarter of 2003, rates were in the 16 percent to 18 percent range before the dollar got out of control after the budget speech.
SWAPPING OF LOCAL DEBT
But for this year, investors are banking on the private sector plan that would see the swapping of local debt for US dollar index bonds, he said. This would generate $4 billion in savings in debt payments. So in another six months, if Government controls its fiscal numbers, rates could drop to 16 per cent.
"If the Government's promises of wage restraint and the like come true, then rates could go much lower," Mr. Armstrong said.
And for the sceptics out there, Mr. Johnson states that locking in at the rate of 22.125 is a gamble as factors could make interest rates go back up.
These factors include the depreciation of the Jamaican dollar and the inability of the Government to meet its fiscal targets. Mr. Johnson said, "The major problem is the Government's appetite for funds which would drive up interest rates."
