BOJ intervenes in forex market
The Bank of Jamaica (BOJ) intervened in the foreign exchange market on Wednesday, selling US$20 million to authorised dealers and large cambio operators by means of its Foreign Exchange Intervention and Trading Tool (B‐FXITT).
The latest intervention of the central bank comes amidst the recent sharp decline in the value of the Jamaican dollar and calls by the President of the Private Sector Organisation of Jamaica (PSOJ) Howard Mitchell, for the Jamaican dollar to be pegged against its United States counterpart.
It also comes as the Opposition Spokesman on Finance, Mark Golding on Wednesday accused the Government of “allowing the Jamaican dollar to bounce around like a jack-in-the-box.”
“It is damaging credit arrangements with suppliers, creating great uncertainty, and playing havoc on businesses,” Golding said in a statement.
According to the BOJ, “This foreign exchange market intervention aims to address temporary demand and supply imbalances, as happens in a free market environment.”
It encouraged businesses to use what it called forward contracts with their financial institutions to minimize the risks that are associated with their foreign exchange obligations.
“This is particularly relevant in an environment where the exchange rate moves in both directions, as it is supposed to do in a free market environment when the economy enjoys a sustainable trade balance,” the BOJ said.
Opposition spokeman on Finance, Mark Golding
Meanwhile, Golding noted that the foreign exchange market is once again suffering what he said was a period of severe shortage of supply of US dollars coupled with a sharp devaluation of the Jamaican dollar.
He noted further that the Jamaican dollar has fallen rapidly this month, moving from $125.60 to US$1 on April 1, to J$133.79 to US$1 on April 16.
“At the same time, businesses in the real sector are complaining that during this period the banking system has not been able to supply their normal needs for foreign exchange,” said Golding.
“This is the third such major disruption to the foreign exchange market in less than a year. It has happened even while the IMF has confirmed that Jamaica has accumulated more than adequate foreign exchange reserves to support a floating exchange rate system,” stated.
However, he said “The inept response of the authorities has facilitated this ‘double-whammy’ of rapid currency depreciation and severe shortage of supply, over and over again.”
The opposition is urging the Bank of Jamaica to use the tools at its disposal to bring an end to what it said is the disruption to businesses and the economy that it has caused by allowing these sudden and extreme spikes and shortages in the foreign exchange market.
Golding also wants Finance Minister Dr Nigel Clarke to review the operation of the foreign exchange market over the past year, and to ensure that a more pragmatic and effective approach is adopted to mitigating temporary supply shortages, so that businesses and consumers are not made to suffer further.
On Tuesday, the PSOJ President blasted the Government and the BOJ for maintaining the present policy of allowing the exchange rate to float.
While addressing the Jamaica International Exhibition Business Breakfast at the S Hotel in Montego Bay, Mitchell expressed alarm and frustration that the Jamaican dollar continues to lose value against international currencies at the height of the winter tourist season.
"The fact is today, in the height of the tourist season when dollars are flowing and in spite of BOJ intervention on at least two occasions, maybe three, the dollar is hovering at about J$132 toJ$133 (to the US dollar), coming from $125 in a matter of 12 days," he bemoaned.
The outspoken Mitchell described the devaluation of the Jamaican dollar as a jinx.
"Devaluation is a curse, it is a self-imposed albatross around our neck, and it is time that we face that reality," he stated.
Mitchell underscored the difficulties for businesses to plan when the value of the local currency does not remain stable.
He also slammed the foreign exchange management programme.
"Can anybody offer me any rational explanation why we continue to pretend that we can successfully operate a foreign exchange management programme in an economy as open to externalities as Jamaica?" he asked.