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BOJ halts reductions of cambio surrender requirement Petrojam largest user of FX

BY DURRANT PATE
Observer writer

Sunday, August 11, 2019

The Bank of Jamaica (BOJ) has put the brakes on reducing the surrender requirement of foreign exchange (FX) by the island's cambios.

This is owing to the growing demand for hard currency by a number of public sector entities. Cambios are required by law to sell a portion of their daily purchases of foreign exchange to the central bank, which is known as the surrender requirement.

There have been periodic cuts in the surrender requirement over the years. The last one took place on February 7, 2018 when the rate was shaved by five percentage points to 15 per cent of daily gross purchases.

Deputy BOJ Governor Natalie Haynes explained that the central bank was on a path to reducing the surrender requirement but had to forego this trend in order to be able to supply public sector entities with foreign exchange for their purchases.

Speaking at last week's Jamaica Observer Monday Exchange, Haynes singled out Petrojam, in particular, as one of those public sector entities to which the BOJ directly supplies foreign exchange.

 

PETROJAM BIGGEST USER OF FX

She identified Petrojam as the biggest user of foreign exchange in the country, for the purchase of oil on the open market. The BOJ deputy governor pointed out that Petrojam's demand for foreign exchange has been increasing since last year, particularly with the ending of the PetroCaribe arrangement with Jamaica.

The PetroCaribe arrangement with Venezuela allows Jamaica and other Caribbean nations that are signatories to the arrangement to purchase oil from the Bolivarian state at concessionary rates without paying the full cost up- front.

“Petrojam demand has been increasing since we no longer have PetroCaribe, so they (Petrojam) have been buying more on the open market,” the central banker declared.

Deputy Governor Haynes disclosed that Petrojam was taken out of the market regarding purchasing foreign exchange, “so we buy foreign exchange from the commercial banks and cambios and sell to Petrojam, so if the BOJ was to reduce the surrender requirement for cambios, Petrojam would have to return to the market.”

According to Haynes, “We are having discussions with them (Petrojam) regarding their sourcing of foreign exchange in having hedging products and forward sales contracts, so if they are going to buy so much foreign exchange, they need to have a very sophiscated set-up.”

Based on market intelligence, Deputy Governor Haynes declared that the BOJ would consider reducing the surrender requirements when the time is right.

For her part president of the Cambio Association of Jamaica, Heather Ferguson Fearon, who also spoke at the Jamaica Observer Monday Exchange made the point that any reduction in the surrender requirement is welcomed but acknowledged that based on market intelligence the time may just not be right for a reduction.