THE Bank of Jamaica (BOJ) has announced an eight-point pre-emptive monetary strategy to assure financial institutions and the public that there will be adequate access to both Jamaican dollar and foreign currency liquidity in wake of the escalating COVID-19 pandemic.

BOJ Governor Richard Byles, who announced the measures in a virtual press briefing with journalists yesterday, disclosed that three relate to the foreign currency (FX) market and five have to do with Jamaica dollar liquidity.

While announcing the measures, Byles also disclosed that the BOJ estimates a contraction in the Jamaican economy in the order of three per cent next year and inflation being on the lower end of the 4.0 per cent to 6.0 per cent range over the fiscal year.

He pointed out that the eight-point measures have already seen some $57 billion in liquidity being pumped into the money market.

EIGHT-POINT MONETARY STRATEGY

Byles disclosed that the first measure with respect to the FX market will see the BOJ placing a halt on investment transactions that require the purchase of foreign exchange, whilst continuing to support the foreign exchange needs of businesses in the real sector through direct sales to authorised dealers and cambios, as needed.

The second measure, which took effect on March 19, has resulted in the BOJ temporarily increasing the limit on the foreign currency net open positions (FXNOP) of authorised dealers by five percentage points. This “effectively raises the limit on the positions of these institutions (either long or short) to 25 per cent of regulatory capital and allows authorised dealers to provide more foreign currency to their clients”.

INCREASED VOLUME ON FX SWOP ARRANGEMENTS

According to the BOJ governor, “We stand ready to expand the volume of foreign currency swop arrangements with authorised dealers, thereby providing them with more FX liquidity,” which forms the third measures in the FX market. As at March 24, 2020, the stock of outstanding swop contracts totalled US$86 million.

In relation to Jamaican dollar liquidity measures, the BOJ will facilitate expanded access through the following channels:

1. The bank has commenced a bond-buying programme where it will purchase Government of Jamaica (GOJ) securities on the secondary market from financial institutions which hold these instruments. The bank is also prepared to early redeem BOJ securities. At March 25, the nominal value of GOJ instruments purchased by BOJ and the early encashment of BOJ instruments amounted to $26.3 billion.

2. With effect from March 18, the bank removed the limit on the amounts that deposit-taking institutions (DTIs) can borrow overnight without being charged a penal rate. Liquidity support to DTIs will therefore be made available on demand at the prevailing rate of 2.5 per cent, limited only by collateral.

3. Effective yesterday, March 26, 2020, the BOJ reintroduced a longer-term lending facility, whereby Jamaican dollar liquidity will be made available to DTIs for periods of up to six months. This enhances the ability of these institutions to secure their liquidity needs over a longer horizon.

4. The bank will reactivate an intermediation facility where BOJ will use its balance sheet to facilitate transactions between holders of liquid balances and others who require liquidity if needed. This facility should support a more even distribution of liquidity in the financial system in a context where institutions, which could not access interbank loans because of the limits placed on them by lenders, can now do so indirectly with the central bank standing in the middle of the transaction.

EMERGENCY LIQUIDITY FACILITY REACTIVATED

The BOJ governor also disclosed that the central bank has taken steps to reactivate the Emergency Liquidity Facility that was established in 2015 upon application by any financial institution. As at March 25, the total value of liquidity assistance provided by the BOJ to the market via its short-term lending facilities and its asset purchase programme amounted to $57 billion.

Governor Byles declared, “We believe that these measures will help to facilitate the smooth functioning of the credit market, support inflation remaining within the inflation target of 4.0 per cent to 6.0 per cent over the ensuing eight quarters and will augment the fiscal measures already put in place by the Government in response to the COVID-19 pandemic.”

He said the BOJ will continue to closely monitor the impact of COVID-19 on the economy and stands ready to deploy additional measures, including a reduction of the policy rate and the cash reserves requirement, to ensure the continued smooth flow of liquidity to all participants in the Jamaican financial system and to maintain orderly conditions within the foreign exchange market.