BOJ says it is pacing intervention in FX market
Governor of the Bank of Jamaica Richard Byles (right) makes a point at a press briefing. Also pictured is deputy governor Dr Wayne Robinson (left)
The Bank of Jamaica (BOJ) says it is pacing its intervention in the foreign exchange market despite the recent depreciation of the Jamaican dollar.
In acknowledging the sharp depreciation of the dollar, BOJ Governor Richard Byles said the market is in a “crisis and supply has been dramatically truncated”.
"Yes, the dollar has depreciated consistently for about a week or two but there has been a recover for two days in a row now and I certainly hope that it continues to show some two-way movement," Byles said. “We are in a crisis and what I say to the people demanding dollars is, bear in mind that the supply has been dramatically truncated. We can’t have everything that we want in this period."
Byles, therefore, called for cooperation from both the supply and demand side.
Speaking on the central bank’s Quarterly Monetary Polic (QMR) Report via a virtual press conference on Wednesday, Byles said the BOJ is pacing its intervention in the FX market, for at this rate, it “could end up selling more than US$1 billion to the market over the course of the fiscal year, which is unsustainable.”
Foreign currency liquidity assistance provided to the financial market since the onset of the domestic crisis in March up to May 15, 2020, amounted to approximately US$338 million, Byles said, adding that the central bank has undertaken several initiatives to assist financial market stability.
“Providing $300 million or more over the last two months, that’s not a small intervention, that’s a very substantial intervention. I think you can use that to mark how serious we are about providing liquidity and making sure that every Jamaican has access to goods and services that have to be paid for in foreign currency," Byles stated.
Recent BOJ interventions in the FX market include raising the limit on the foreign currency net open positions of authorised dealers; direct sales to authorised dealers and cambios via B-FXITT (US70 million); direct sales to the Jamaica Public Service Company (JPS) and Petrojam (US$60 million); expanding the volume of foreign currency swap arrangements with authorised dealers and provision of a US dollar repo facility (US$170 million) to financial institutions.
“If we continue to sell at this pace or provide liquidity at this pace, it will reduce our non-borrowed reserves quite considerably. We just want to pace ourselves and I think that is a natural, normal, prudent thing to do,” the BOJ governor reiterated.
Byles also noted that the length and depth of the recession caused by COVID-19 is unknown, hence the need to pace intervention.
“Do we start to come out September, October, December, or does it last longer? We have hurricane season in front of us, we have to be prepared for eventualities,” Byles said.
Furthermore, the central bank needs to provide the market with some of the dollars that are missing from tourism, which work out to be about US$50 million a week, Byle said.
“Be assured, however, that with careful management, at US$3.1 billion at end-April 2020, the net international reserves of the Bank of Jamaica (NIR) are adequate to weather this storm,” the central bank governor said.
Concurrently, the bank has indicated that it is not considering direct sales of foreign exchange to manufacturers, following recent sales to JPS and Petrojam.
Senior Deputy Governor John Robinson said sales to Petrojam were normal for the central bank and the recent transaction with JPS was in response to unusual circumstances.
“Those payments had to be made at a time when the market was particularly short. We supply funds to Petrojam regularly, being part of the public sector entities programme. I don’t expect that payments to JPS will continue interminably, but until the market recovers, we see it as a necessary step to sustain those services, which are crucial to all of us,” Robinson said.
For his part, BOJ governor, Byles said manufacturers are not an essential service for all Jamaicans.
“If we're to go down that road, the question would be which manufacturer, why have you left out that one and we would back at the place of where we were before we had a free market for foreign currency, which is that we were allocating funds to particular businesses,” Byles said.