The Bank of Jamaica (BOJ) sold US$30 million to authorised dealers and cambios via Bank of Jamaica’s Foreign Exchange Intervention and Trading Tool (BFXITT) on Friday.

This “flash sale” auction, a feature of BFXITT, follows a similar operation of US$20 million conducted on January 17, 2019 — both of which were “aimed at offsetting the effects of excessive daily volatility in the foreign exchange market in recent weeks,” according to a release from the BOJ.

“Gross foreign exchange earnings flowing into the economy have remained buoyant and as such, on the macro level, there is no shortage of foreign exchange.,” the BOJ said.

The bank noted, however, that there is information that several firms are seeking to borrow funds in foreign exchange from the local capital market and this, combined with normal commercial demand, has led to increased demand and recent price movements in response.

“These temporary gaps between demand and supply are normal in a market and with more than adequate foreign exchange reserves, Bank of Jamaica stands ready to address these gaps when required,” the bank said.

The BOJ move was supported by Chris Zacca, president and CEO of Sagicor Group Jamaica, which recently concluded a large forward sale contract.

“We are operating in a liberalised and free foreign exchange market which is a huge plus for businesses. From time to time demand outstrips supply, and at other times supply outstrips demand. That leads to movements in the US$ rate up and down, and this volatility is to be expected in any free market,” Zacca observered.

“What is most important is that from where I sit, on average there is an adequate supply of foreign exchange in the market and we are upbeat on the prospects for the economy.

“In fact, Sagicor Investments just successfully concluded a foreign exchange forward sale contract for US$80 million with a major Jamaican corporation, setting a fixed price for the US dollar as of a certain future date.”

Meanwhile, the Jamaica Chamber of Commerce also came out strongly in support of the day’s B-FXITT Flash Intervention Tool Sale, or unscheduled foreign exchange auction, by the Bank of Jamaica.

“We believe that this measure is appropriate to guard against the emergence of disorderly market conditions and restore confidence in the exchange rate, and would support further intervention as needed to smooth the impact of recent portfolio shifts, which we understand, according to the Bank of Jamaica, include several firms borrowing in foreign currency from the local capital market,” Lloyd Distant, president of the JCC, told the Jamaica Observer.

“We do not believe there is an underlying shortage of foreign exchange, and therefore ask that the Bank of Jamaica foster confidence through improved foreign exchange market transparency, and expect that they will manage and respond to future shocks in a timely manner,” he added. “We continue to support the Bank of Jamaica’s medium term move to inflation targeting.”

The efficient intervention and oversight of the market rely on the information the Bank receives from foreign exchange dealers, who in turn depend on the information they receive from their clients.

While this flow of information has been improving, “a lot more improvement is still needed,” the bank said, adding “more foreign exchange users need to give their dealers advance notice of their intention to buy or sell foreignexchange. This will enable both dealers and the central bank to have a more complete picture of evolving market needs and be in a position to act on this information.”

In addition, the bank is also strongly encouraging businesses to use forward contracts with their dealers to manage their foreign exchange transactions.

“Fluctuations in the rate can be inconvenient, but it is those very fluctuations which create the opportunity for using forward contracts to manage foreign exchange transactions more efficiently and to plan more long term,” the bank said in its release.

“Temporary supply and demand conditions aside, we must be reminded that as of 2017, contrary to what we have been accustomed to, we have a new foreign exchange market which behaves differently. It is no longer a market in which the exchange rate drifts in one direction only, and as long as prevailing economic conditions remain as positive as they are, it is normal and to be expected that the exchange rate will keep fluctuating in both directions,” the bank said.