The Bank of Jamaica (BOJ) in its latest Quarterly Monetary Policy Report has said that they will continue to ensure that order is maintained in the foreign exchange (FX) market, promising to intervene where necessary.
Speaking at a press briefing on Thursday (November 21), governor of the central bank, Richard Byles, said that the bank in keeping with the Government’s position is also committed to maintaining a flexible FX rate system.
“BOJ will continue to ensure orderly conditions in the foreign exchange market and will intervene if there is excessive volatility of the emergence of temporary gaps in supply. It is also important that authorised dealers and cambios work together to facilitate a transparent and smooth functioning FX market,” he said.
In addressing the recent movement of the FX with the last of couple of days, which stimulated much public outcry, the BOJ governor has said that much of the spike in demand stemmed from the heightened demand relating to portfolio transactions, combined with seasonal restocking by retailers ahead of the Christmas period. As a response to the unusual demand the BOJ moved to counter the problem by selling a total of US$140.0 million within the period through its B-FXITT flash sales.
The governor also mentioned that its November 14 intervention led them to amend existing rules, stipulating that all the funds sold by them be sold to end-users (non-financial commercial entities with funding obligations for goods and services acquired ie operators in the productive sector). As a justification the bank said that they felt this requirement was necessary as the larger part of previous intervention funds had not served the interest of end users.
Stemming from the volatile movement of the dollar in the past weeks and the continued appreciative trend since November 13, the bank believes that there is now some semblance of normalcy.
“The bank is of the view that most of this extraordinary demand for foreign currency has been satisfied,” the governor shared.
In a more stringent manner, the central bank governor said that the BOJ will also be collaborating with the Financial Services Commission (FSC) to caution how certain transactions, especially those related to portfolios, are done and timed, this they say will be done through prior vetting, in hopes of smoothing out glitches that may be threatening.
“In association with the FSC we have agreed that we will collaborate on looking at these transactions before they come out of the gate, because part of the problem is, they were approved and were in the market when they started to affect the demand and supply and therefore the price. Further we have had discussions with all of the dealers, 20-odd of them came in to see us and we sat down and had some hard discussions with them. I’ve spoken to heads of the commercial banks and they know that we expect them to play a responsible role in how they time these investments; if they did use forward contracts it would help a lot in allowing that demand and supply to be met up more evenly,” the governor instructed.
Byles also updated that the FX trading platform which was announced earlier this year is now almost ready and will be fully operational by next year.
“We do have a new FX trading platform of which we are going to be implementing and testing around January/February, then we will start the use of it throughout the trading operations with the banks,” he said.
He added that the platform will allow all the traders, buyers and sellers operating on the market to experience real-time view of all the bids and offers, creating more transparency in the FX market—this he says is much needed.
Outside of addressing the FX concerns which have breached the physiological threshold of many Jamaicans over the last couple of weeks, the BOJ in this latest quarterly report, offered that the prospectus for the economy continues to remain positive.
“Foreign reserves are at adequate levels and we have a sustainable position in the current account of the balance of payments. Fiscal performance is strong and public sector debt continues to declines at a steady pace. Jamaica’s labour market continues to improve and market interest rates remain generally low,” Byles said.
The bank also commented that in maintaining the policy rate at 0.50 per cent per annum, they will be able to support the achievement of the bank’s inflation target of 4.0-6.0 per cent over the next eight quarters.
Still ardent about its position on inflation targeting, the central bank in noting that depreciation in the exchange rate could impact the inflation rate, noted that the impact of this currently is much lower than in the past.
“Higher inflation could also arise from stronger than anticipated domestic demand , driven by the improved credit conditions in the economy or lower if there is an higher than anticipated production in the agriculture sector, leading to lower rates of increases in food supplies,” the governor further expressed.