Jamaica's treasuries rose to a new high this month above 15 per cent as interest rates continue to trend up, but not enough to offset inflation which the central bank now estimates could end as high as 17 per cent this fiscal year.

The six-month treasury bill yielded 15.08 per cent on average in the central bank auction of August 27, but allotments were made on rates that ranged as high as 15.5 per cent; the three month averaged 14.58 per cent. The six-month bill is generally cited as the benchmark interest rate.

Subscriptions for the two bills topped $1.6 billion, but only $900 million was allotted in the auction.

The yield on the six-month treasury bill was 18 basis points above the July bill, and close to three percentage points above the August 2007 yield of 12.21 per cent.

The market has, since last year, been demanding higher returns on government paper, to offset inflation, which is growing at a rate of two per cent per month and running at an annual 26 per cent.

Forecast adjustment

The Bank of Jamaica adjusted its forecast on fiscal inflation just last week, raising its estimate from 14 per cent to between 15 per cent and 17 per cent.

"The risks to the inflation forecast continue to be biased towards the upside (17 per cent), mainly because of the strong probability of adverse weather changes and higher than anticipated increases in international commodity prices," said the June 'Quarterly Monetary Policy Report'.

Essentially, though, the central bank, while acknowledging that world commodity prices could have a deeper impact than projected at the top of the year, is still predicting a better outcome for inflation over last year's 19.9 per cent.

The next monthly T-bill auction is on September 17.

business@gleanerjm.com

SOURCE: Financial Gleaner, Friday, August 29, 2008