BOJ and NCB address dollar slide

BOJ sells US$40 million into FX

Wednesday, November 13, 2019

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The Bank of Jamaica (BOJ) yesterday sold US$40 million into the foreign exchange market to calm supply jitters and stabilise the dollar, which is now at a record low of close to J$142 to US$1.

The sale was made via the bank's B-FXITT arrangement in which the hard currency was sold to authorised dealers and cambios to augment supply in the market.

In making the announcement, the BOJ contends that, “the factors behind the recent depreciation in the exchange rate are well known and the BOJ expects that these impulses will subside and that normalcy will return to the market”.

The BOJ pointed out via news release that there has been an increase in demand for foreign currency due to the regular restocking by retailers for the Christmas season. In addition, there has been extraordinary demand relating to portfolio transactions.

Notwithstanding the recent depreciation, the BOJ emphasised that inflows into the foreign exchange market remained healthy. For October 2019, average daily inflow from earners was approximately US$31 million, in line with October 2018. However, driven by the factors noted above, demand has outstripped this supply.

PUBLIC CONCERNS ABOUT THE DOLLAR SLIDE

The BOJ says it notes “the public's concern about the recent depreciation in the exchange rate, but based on Jamaica's economic fundamentals, it does not expect that the recent pace of exchange rate movement will be sustained. Also the current account deficit of the balance of payments is expected to remain low and sustainable, albeit slightly higher than the deficit recorded in 2018”.

The BOJ adds that accounting for the impact of foreign direct investment, inflows will be sufficient to cover this deficit. The bank says it remains committed to maintaining orderly conditions in the foreign exchange market and will only intervene to prevent disorderly market conditions.

The BOJ says it is far advanced in the development of a trading platform for foreign exchange that will introduce greater transparency. In the meantime, the island's central bank is urging Jamaicans to make use of forward contracts in managing their foreign exchange needs.

National Commercial Bank, which is the biggest player in the FX market, says it too is concerned about the slide in the dollar, while emphasising that the current volatility is not as bad in days gone by.

Speaking at NCB's Investors Briefing on Friday, NCB Chief Financial Officer (CFO) Dennis Cohen argued that when you look at the numbers the volatility has not been that great, while over the past few weeks there has been an uptick in the depreciation of the dollar.

“At the same time when you look back say a year the point to point volatility has not been that high,” Cohen emphasised.

NCB COMMITS TO HELP

The NCB CFO gave a commitment that NCB will do whatever it can to help halt the slide in the dollar. According to the NCB CFO, “certainly we want to see stability and certainly whatever kind of support banks can provide, in that regard we will certainly provide that support”.

He pointed to certain feedback from the market, which is calling for different types of financial transaction to stabilise the exchange rate; one of which is the use of forward contracts in which banks and other businesses forward buy foreign exchange at a fixed rate in present time to be accessed at a future date, thereby bringing greater predictability to the FX market.

Last week the Private Sector Organisation of Jamaica (PSOJ) issued similar sentiments when they too commented on the decline of the Jamaican dollar, urging especially members of the business community to remain calm, noting that the organisation was in support of the initiatives undertaken by the central bank, of which they say will reduce volatility in the market overtime.


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