Brian Wynter, Governor of the Bank of Jamaica (BOJ), said that the bank was able to drain the excess liquidity created by the national debt exchange (NDX) payout on February 11, thereby reducing demand for US dollars which could have negatively impacted the financial system.

The $62-billion NDX pay-out took place as scheduled and some of the outflow went into take-up of the two domestic bonds issued by the Government on the same day that the payment was made.

Bondholders who were in debt to the central bank for liquidity support since the debt exchange also settled their accounts.

However, there was still about $27 billion seeking a home.

Governor Wynter said the BOJ successfully diverted most of this through new instruments offered.

Speaking at the event convened to release the Quarterly Monetary Policy Report (QMPR) for the period ended December 31, 2015, the governor said: “Unable to find a home, investment funds that were not taken up by the Government sought short-term protection from uncertainty by seeking US dollars in the days that followed. [The] Bank of Jamaica promptly met the resulting excess foreign exchange demand with sales of US Dollars and by issuing US Dollar-indexed one-year certificates of deposit.”

Wynter said that these operations together drained $23 billion from the system and “restored balance to supply and demand in the foreign exchange market.”

The governor opined also that it is now clear that Jamaican investors still have an appetite for Government paper.

The GOJ, also on February 11, restarted the domestic bond market with a $15-billion bond issue in three maturities: a two-year, a six-year and a 30-year.

The Governor noted that even before the issue, $17 billion, over and above the $15 billion accepted by the Ministry of Finance, had been committed. In other words, demand was for $32 billion.

“This demonstrated overwhelming investor acceptance of government risk just 10 business days before the general election, a period traditionally associated with risk aversion and avoidance of long-term commitment. Clearly, domestic investors are again willing to buy long-term government debt and accept fixed interest rates in local currency,” Wynter noted.

Consequent upon its own actions to divert funds which would have sought a safe harbour in US currency buys, the BOJ said the exchange rate has remained stable and net international reserves are still “well in excess of the target”.

He noted that the remaining liquidity might result in increased “downward pressure on interest rates” and the easing of credit terms for households and firms.

Conditions, he said, “bode well for faster growth from investments in infrastructure, capital equipment and training, driving increased exports and import substitution”.