BOJ admits that its current COVID-19 FX intervention is unsustainable

BOJ admits that its current COVID-19 FX intervention is unsustainable

Left unchecked intervention could amount to US$1 billion by end of fiscal year

Observer business writer

Friday, May 22, 2020

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Bank of Jamaica (BOJ) Governor Richard Byles has given the clearest indication that the bank's current COVID-19 foreign exchange intervention, which has amounted to US$338 million over the past two months, will be tempered.

Addressing the bank's quarterly news briefing virtually on Wednesday, Byles pointed out that foreign currency liquidity assistance provided to the financial market since the onset of the domestic crisis in March 2020, up to May 15, amounted to approximately US$338 million, also indicating several initiatives that the central bank has rolled out during the period to assist financial market stability.

Byles emphasised, “At this rate, the bank could end up selling more than US$1 billion to the market over the course of the fiscal year, which is unsustainable. Be assured, however, that with careful management, at US$3.1 billion at end-April 2020, the net international reserves (NIR) of the Bank of Jamaica are adequate to weather this storm.”


The BOJ governor explained that by Friday (today) the BOJ would have released US$240 million liquidity support in the foreign exchange market this week alone.

This was done through the release of reserves amounting to US$70 million and a repo transaction of approximately US$170 million.

He stated that the BOJ's ability to defend the local currency and the provision of adequate foreign reserves was bolstered by the Government of Jamaica putting in place prudent contingency arrangements by applying to the IMF for support of US$520 million under the rapid financing instrument (RFI). This loan facility was approved by the IMF executive board on Friday, May 15.

The proceeds of the loan are currently reflected in the gross reserves of the central bank. Governor Byles explained that the Government can also use these resources for budget support, should the need arise.


The Jamaica Observer sought to get an explanation from the governor as to why there is such a high demand for foreign exchange at a time when economic activity has been slowing down. He explained that manufacturers and importers have been demanding additional foreign exchange to purchase raw materials to carry out their business, as well as market players engaging in precautionary purchasing.

The Caribbean Business Report questioned Governor Byles about whether there is hoarding given that economic activity is slowing down while there is a marked increase in the demand for foreign exchange. Byles responded in the negative but admitted that manufacturers and importers have been demanding foreign exchange to boost inventory levels for the upcoming hurricane season.


The BOJ governor was however adamant that the financial sector is highly liquid.

“They [financial institutions] are in a liquid position and we continue to supplement wherever we see a dip, but let us be clear that the liquidity in the financial institutions is adequate. We watch it very carefully and I can promise you that even when we run our stress test to the extent that we see any weakness, we will go to the institutions and speak with them about it,” Byles declared.

He made reference to the BOJ's recent advisory asking financial holding companies and deposit-taking institutions to suspend dividend payments to shareholders in order to maintain adequate liquidity levels, describing the move as part of the BOJ's overall liquidity management of the sector. In concluding, Byles expressed the belief that its current monetary policy stance is adequate to keep inflation within the target range.

However, the BOJ will continue to review and assess that stance as time progresses.

For the current fiscal year (FY2020/21) the point-to-point inflation rate is projected to be 4.5 per cent, while a slightly lower rate is projected for the next fiscal year. This forecast path is lower than the bank's projection in February.

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