BOJ expected to continue its intervention through auctions and/or B-FXITT operation

The Jamaican dollar depreciated by 0.19 per cent last week relative to the American dollar with the greenback selling rate moving from J$157.63 on February 4 to J$157.94 on February 11.

The depreciation continues to be driven by strong demand and weak supply. It is expected that the Bank of Jamaica (BOJ) will continue its intervention to defend the local currency through Government of Jamaica auctions and/or B-FXITT actions in the coming weeks.

The intervention is also due to the BOJ’s continued sterilisation of the market to contract Jamaican dollar liquidity. This is seen as the BOJ recently offered a two-year Certificate of Deposit (CD) totaling J$20 billion, while total bids received were J$27.15 billion.

30-day CD average yield going down

Last week, the average yield from BOJ competitive auction on its 30-day CD decreased to 4.02 per cent relative to 4.07 per cent in the prior week. The highest bid for full allocation was 4.10 per cent.

A total of J$10.5 billion was offered in the auction, while the total bids received were J$18.7 billion. The Jamaica dollar money market conditions remained tight given the concentration of liquidity amongst Deposit Taking Institutions, as the demand for liquid assists remains high.

Market conditions are expected to remain tight in the coming months, as the BOJ seeks to guide inflation back within the target range of 4.00 per cent – 6.00 per cent. As at December 2021, the inflation rate reduced from 7.80 per cent to 7.30 per cent.

If the rate continues to trend above the target, it is likely that the central bank will continue increase rates to drive down inflation. The next policy decision announcement date is this Friday February 18, 2022.

Moreover, with tax season fast approaching, Jamaican dollar liquidity is expected to decline, which will add to tight money market conditions.