First intervention since July

Durrant Pate/Contributor

The Bank of Jamaica (BOJ) intervened in the foreign exchange (FX) market last week, resulting in the local currency appreciating slightly week-over-week.

The BOJ’s intervention of US$60 million last Thursday and Friday was the first time Jamaica’s Central Bank was intervening in the FX market since July. As a result, at the end of last week, the Jamaican dollar appreciated by 0.03 per cent, moving from a selling rate of J$152.79 on September 9 to J$152.74 on September 16.

This marginal appreciation was influenced by the BOJ’s intervention, which increased the supply of US dollars in the market. The US dollar money market remains stable and moderately liquid.

Broker market demand for the ‘greenback’ remains at 30-day and longer-tenured funds. The US$60 million BOJ intervention is expected to remove approximately J$9.1 billion from the market.

Strong international reserves

The BOJ has advised that its strong international reserves reinforce its ability to support the foreign exchange market as needed. It is therefore expected that the BOJ will continue to intervene as necessary to maintain stability in the foreign exchange market and absorb JMD liquidity to stem inflation.

Jamaican dollar liquidity remains tight, accompanied by continued high levels of competition for cash by market players, such as deposit taking institutions (DTIs), as they seek to maintain liquid asset ratios and stay sufficiently liquid. Therefore, Jamaican dollar money market rates are expected to remain elevated.

As of September 15, a total of J$18.58 billion was in the market, as represented by the BOJ’s aggregated current balances for DTI. This was a J$4.51billion (19.53 per cent) decline relative to the prior week.

The BOJ’s expectations of the tight liquidity conditions continuing, as it focusses its efforts on guiding inflation back within its target range through Government of Jamaica auctions and/or B-FXITT auctions.