BOJ committed to safeguarding reserves


BOJ committed to safeguarding reserves

Says FX will only be sold to productive sector to facilitate trade needs

Sunday, May 10, 2020

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The Bank of Jamaica (BOJ) said that as a response to the ongoing impact of the coronavirus (COVID-19) pandemic it will be taking all the necessary steps to safeguard the level of net international reserves (NIR) held by the country at this time.

“The extent and duration of COVID-19 is still uncertain and the bank will therefore continue to judiciously use reserves to only address excessive movements in the exchange rate. Further, the sale of foreign exchange (FX) will only be to the productive sector to assist in paying for imported goods and services,” said Dr Wayne Robinson, deputy governor in charge of the research & economic programming and financial stability at the BOJ, in response to questions from the Jamaica Observer this week.

He said that the recent volatility of the dollar [which has been hitting record highs in the past few days] mainly stems from the fallout in tourism and remittances which are major FX earners for the country.

He, however, noted that the central bank will continue its pursuit of a flexible foreign exchange.

“The rate will be allowed to reflect changes in the underlying demand and supply of foreign exchange, but we will ensure that the adjustments are orderly. In this regard, we will continue to judiciously sell into the market when necessary and to provide options such as FX swap arrangements to authorised FX dealers,” he told Sunday Finance.

On Thursday, the central bank intervened in the FX market through a BOJ FX Intervention trading tool (B-FXITT) flash sale to offer $US30 million to end-users (non-financial commercial client entities that are funding obligation for essential goods and services).

Robinson further mentioned that other measures such as the issuance of $US indexed bonds will also be used as a tool to address the demand for FX from persons who anticipate a need to hedge against further exchange rate movements.

“Particularly, during this period, it is important that the users of foreign currency work closely with their dealers and cambios in managing the size and timing of their demand given the fallout in supply,” the deputy governor advised.

The Caribbean Development Bank (CDB) recently urged its borrowing member countries (BMC) to protect reserves amidst the uncertainty of the COVID-19 crisis. With the current level of NIR held by the BOJ currently standing at $US3.1 billion, Robinson noted that these were deliberately built up for such a purpose.

“Bank of Jamaica deliberately built up foreign exchange reserves to ensure that we have the capacity to respond to crises such as COVID-19. The anticipated draw-down from the International Monetary Fund (IMF) under the Rapid Financing Instrument (RFI) will provide additional liquidity to the bank,” he added.

The RFI, which is an emergency fund facility of the IMF, once approved will see the country drawing down additional funds amounting some $US500 million to assist with relief efforts. The resources from these institutions come in the form of FX that can be used to supplement and augment the country's supply of reserves.


Robinson also outlined that while the economic fallout expected from the crisis is expected to be significant, the process of recovery — which is highly dependent on the local and global arrest of the pandemic — may not be able to commence in any meaningful way before the March 2021 quarter.

“We are currently updating our assessment of the contraction and it is likely to be greater than what was experienced during the 2008-2009 global financial crisis. A significant fall in employment can therefore be expected,” he told Sunday Finance.

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