The Bank of Jamaica (BoJ) yesterday announced an offer to the market of a special one-year variable-rate certificate of deposit (CD).

According to a press release issued by the BoJ, interest payments on the CD will be made quarterly and will have an initial coupon of 11.80 per cent per annum, the same rate on the central bank's 90-day certificate of deposit.

Interest payments

The central bank said "subsequent interest payments will be calculated at one percentage point above the [BoJ's] 90-day rate applicable at the beginning of each quarterly period."

The bank's introduction of the instrument coincides with recent pressures on the Jamaican dollar. Market sources told the Financial Gleaner that the BoJ introduced the instrument to mop up excess liquidity in the market.

"There is a lot of money out there and clearly the BoJ is saying that it is a problem. In fact, that would explain the recent slide in the dollar," the source said.

One reason for the excess liquidity has to do with the maturity of government instruments this month which the Finance Ministry opted not to roll over, as hinted at in the central bank's press statement.

Redemption of debt

"The offer is being made in the context of the redemption of Government of Jamaica domestic debt instruments on 18 January 2007, which will increase the level of liquidity in the financial system beyond its normal requirements," said the BoJ.

But, to put it in context - as noted by The Financial Gleaner's source - "the Government is not as strapped for cash as it used to be."

business@gleanerjm.com